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YFP 176: How Stephanie Got $72,000 Forgiven Through TEPSLF

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How Stephanie Got $72,000 Forgiven Through TEPSLF

Stephanie Hale shares her journey applying for and receiving Public Service Loan Forgiveness (PSLF).

About Today’s Guest

Stephanie Hale, Pharm.D., BCPS is a pharmacist for WellSpan Health System in south central Pennsylvania. She completed her pre-pharmacy studies at Rutgers University and the University of Maryland, Baltimore County. Stephanie then completed her Doctor of Pharmacy degree at the University of Maryland School of Pharmacy.

While enrolled at the University of Maryland School of Pharmacy, Stephanie worked as an intern for Wal-Mart Pharmacy. Upon graduation in 2008, Stephanie practiced retail pharmacy at Wal-Mart. In 2009, looking for a change, she accepted a staff pharmacist position at WellSpan Health and courageously transitioned from the comfort of retail pharmacy to the diverse world of hospital pharmacy in a Trauma Level 1 hospital. Within 2 years, Stephanie was promoted to a Clinical I Pharmacist position giving her the opportunity to participate in patient specific dosing regimens including pharmacokinetics, total parenteral nutrition, and anticoagulation. During her time at WellSpan York Hospital, Stephanie earned her BCPS certification and was a member of various committees, all while having and raising two wonderful children.

In 2019, Stephanie transferred to WellSpan Gettysburg Hospital. With her vast experience and knowledge, Stephanie immediately became an integral member of both their inpatient staff and the outpatient infusion team.

Earlier this year, Stephanie’s federal loans were discharged through the Public Service Loan Forgiveness program. Stephanie and her husband are looking to use the money that is no longer going toward those monthly payments to explore real estate investing.

Summary

When Stephanie Hale graduated pharmacy school in 2008 she had about $100,000 of federal student loans and $20,000 of private student loans. After the six month grace period, Stephanie was left feeling overwhelmed with what to do, so she consolidated the loans so she’d only have to make one payment a month.

In 2016, one of Stephanie’s colleagues that had recently graduated began talking about PSLF at work and how he was pursuing it. This caught Stephanie’s attention as she didn’t know what it was. After looking into PSLF, she realized that she worked for the right type of employer and was approaching her ten year anniversary at her hospital. She transferred her loans to Fed Loan Servicing in September 2016 and learned that the repayment plan she was in didn’t qualify for PSLF forgiveness. She needed to be in an income-driven repayment plan, however this would have increased her monthly payments significantly. She put PSLF on the back burner and circled back to it in 2018, this time discovering that TEPSLF (Temporary Expanded Public Service Loan Forgiveness) could be an option for her.

After researching TEPSLF’s requirements and with a lot of patience, perseverance, organization and diligence on her part, Stephanie was granted forgiveness for over $70,000 of federal student loans in May 2020.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Stephanie, thank you so much for taking time to come on the show.

Stephanie Hale: Hey, thank you for having me. Hopefully I’m able to help anyone who’s thinking about going through this journey.

Tim Ulbrich: Really appreciate your willingness to do that, and I think it certainly is going to be the case and excited for everyone to hear your story. And we are often asked if PSLF is a viable option and if pharmacists should even consider it given all of the news and attention that it has received. And so when I saw your comment on the YFP Facebook group about receiving forgiveness through the TEPSLF program, I knew we had to bring you on the show because I think it’s going to do exactly that — it’s going to give some more information and perhaps some will realize maybe they’re eligible for something they didn’t know they were eligible for, weren’t thinking they would meet that eligibility criteria, and it’s going to be an example for someone who has actually walked down this path and received that forgiveness. So before we dig into your PSLF journey — or I guess your TEPSLF journey, however we want to say it — I’d love to hear more about your background in pharmacy, where you went to school, and what your career story has been thus far.

Stephanie Hale: Yes, so I did my undergrad at Rutger’s University in New Jersey. I did a year there before deciding I was going to transfer to be closer to home. So I did another year of undergrad at the University of Maryland-Baltimore County. And then the following year, I started at the University of Maryland School of Pharmacy in Baltimore. So I graduated in 2008 from pharmacy school and throughout pharmacy school, I was an intern at Walmart and I figured that’s what I was going to be doing. I enjoyed it a lot. And then about a year out, I decided that I wanted to try something different. So I had called one of my location sites a local hospital, and luckily they were hiring. And so I started there September of 2009.

Tim Ulbrich: Awesome. Very good. Thank you for sharing that. And I think it’s a good segue into our discussion about the debt journey and ultimately, the forgiveness journey. So let’s talk a little bit more about student loans. You get to the point of graduating. So tell us a little bit about how much you had at that point, how you felt about the debt while you were in school, as well as while you were making that transition and that point in time what your plan and strategy looked like to ultimately pay back the student loans.

Stephanie Hale: Yeah, so while in school, I just figured hopefully I’ll graduate, I’ll have a great job that makes good money. So I will pay it back. So when I graduated, I had roughly about $100,000 in federal loans and about $20,000 in private loans. And after graduation, you know, you had about six months’ grace period. I got to looking into everything with all the paperwork they sent you. It was a little overwhelming. And so I decided at that point to consolidate my federal loans. I was like, I’m going to miss a payment if I don’t consolidate. I forget how many different lenders there were. So I did consolidate, which proved to be helpful later on.

Tim Ulbrich: Very good. And at that point, was PSLF even on your radar? And if not, when did that come into play?

Stephanie Hale: So I think PSLF was new in 2008, so it was not on my radar. So I had consolidated to a 30-year loan, decided I’m just going to pay for 30 years, and this is the way it’s going to be. At the time, I wasn’t married but I was engaged to my husband. And we were planning for a wedding, so I figured 30 years is what we could afford at the time, we were paying for an apartment at the time, so I had just had thought OK, well it’ll be 30 years, and we’ll see what happens.

Tim Ulbrich: Awesome. So looking at a long 30-year timeline at that point, obviously as you mentioned, PSLF was new, so enacted in 2007. So that was the first group, wasn’t even eligible for receiving that tax-free forgiveness until 2017. So one of the things that we have talked about on the show before is that I think for individuals such as yourself that graduated in that time period where shortly after PSLF was enacted, legislatively, you know, while that happened, there wasn’t a whole lot of good guidance around what folks should do. And I think like there was certainly much better advice that’s out there today. So many folks out there may be unaware of the options as well as whether or not they were PSLF-eligible. So when did PSLF then come on your radar?

Stephanie Hale: So I had been working at the hospital, and I think around 2016 or so, a colleague of mine was talking about it. He was newly graduated, he started working there, and he’s like, I’m going to be doing PSLF. What’s that? So I looked into it, and I was like, well, I guess it doesn’t hurt to try. So in doing that, you have to transfer your loans to FedLoan, so I did that. That was about September 2016. And I did get the denial saying my loans did not qualify. So at that point, I kind of just put it on the back burner and didn’t even think about it for awhile.

Tim Ulbrich: And when they sent you that rejection in 2016, and then you mentioned putting it on the back burner, what was the rationale for the rejection at that point in time?

Stephanie Hale: I would have had to change income-based payments, and the payments would have been a lot more than I could afford at the time. I believe it was going to be — my payments were roughly $600. And I think that they were going to go up to like $1,100 or $1,300. And we had already at that point bought a house, I had one kid, thinking about having another. So I was like, I don’t think we can do this. So at that point, I had been paying my loans for almost 8 years. And I was like, well, I’d have to start all over again and be another 10 years and by that point, I’ll have been paying 18 years. And I didn’t know if it financially made sense.

Tim Ulbrich: Sure, OK. So I want to make sure I’m summarizing correctly because I think this is such an important part of your story. At this point in time, 2016, you hear about PSLF, you obviously have been in the workforce, you’ve been working for an employer that would count as a qualifying employer, and obviously you’ve been making federal student loan payments all along the way. But you weren’t in a qualifying repayment plan. And so obviously the pieces here that we need to consider would be one, you’d have to get into a qualifying repayment plan — and we’ll talk about the logistics there with TEPSLF — but at that time, that would have meant a significant bump in payment per month, an extra $600 or $800 per month, which obviously is significant. It matters. But you did make the change in terms of FedLoan servicing as your servicing company, which would have been the loan servicing company for those that were pursuing PSLF. So that door was still open.

Stephanie Hale: Yes.

Tim Ulbrich: And then fast forward a couple years, and why did you end up coming back to this in 2018?

Stephanie Hale: So like I said, I was just going about my business and I don’t know — like I said, I saw it on Facebook or I saw it just scrolling through the news about TEPSLF. I’m like, oh, what’s this? So I started reading it, and I was like, I think I might qualify for this. And that was I want to say August of 2018. And at that point, I’d had a second kid, working full-time. So very busy. So I actually didn’t look more into it until I think it was closer to December when I actually sat down and I was like, I need to look into this and see how I can go about this. So I knew that I was coming up on 10 years with my employer and I had the correct type of loans, I knew I just didn’t have the right type of repayment plan.

Tim Ulbrich: Perfect. And insert there Temporary Expanded Public Service Loan Forgiveness. And so I want to take a few moments to do some education on the terminology for those that may be hearing some of this for the first time. So Stephanie, hang tight —

Stephanie Hale: OK.

Tim Ulbrich: — for a few moments, and we’re going to come back here to the story and learn more about the execution and ultimately what happened at the end for you. So TEPSLF is Temporary Expanded Public Service Loan Forgiveness and really is intended for exactly what we’re talking about here today. Folks that may be working for a qualifying employer, who have been making what would be qualifying payments in terms of federal student loan payments, but are often in the wrong repayment plan. And that can be for a variety of reasons. And to be fair, this isn’t extremely easy to navigate. And so I think sometimes there’s issues around consolidation or people are often in an extended or graduated repayment plan, thinking they’re making qualifying payments, but they are not. Or folks such as yourself, Stephanie, where you may be looking back and saying, oh my gosh, I am working for an employer that is really the intended audience for something like PSLF but just didn’t think of it that way from the get-go, and therefore are now trying to look retroactively to see if this is an option. And so if folks want to learn more — and we’ll talk about the details of TEPSLF here in a few moments — we also talked about it on one of the recent Ask a YFP CFP episode, Episode 036 where Karen from Coral Springs asked the question around this — really this — being under the wrong repayment plan and what that meant for the TEPSLF application. Now, one other thing I want to talk about for a moment is just a brief history and the mechanics of PSLF. Now, we’ve talked about this on the show before. Episode 018, we talked about maximizing the benefits of PSLF. Episode 078, we talked about is pursuing PSLF a waste? And that was when there was a lot of headline attention and news that came out about only 1% of folks that were successful in achieving that PSLF forgiveness. And we felt like it was an important episode to really break down the data further. And of course, we talked about PSLF in “The Pharmacists Guide to Conquering Student Loans,” which is available at PharmDLoans.com. And so I think as we look at the history of this, it’s really, really relevant here as we look at Stephanie’s timeline in terms of what played out and the information that was available to her and ultimately, having to look backwards to correct some of this. So as we talk about PSLF, this is typically loan forgiveness, the loan forgiveness strategy that gets all the press — usually, for all the wrong reasons. And I think it’s important that we look at some of the history of why that is the case. The Public Service Loan Forgiveness program, PSLF program, was created under the George W. Bush administration via the College Cost Reduction and Access Act of 2007. Now, since the program’s inception, it’s faced significant political opposition from both administrations since Bush, since President Bush. President Obama proposed a cap of $57,500 for all new borrowers in his 2015 budget proposal to Congress. And then in 2016, the PSLF program was threatened this time by the Republican party with the congressional budget resolution that saw PSLF on the chopping block for the first time for all new borrowers. And since then, PSLF has remained an endangered species as both President Trump’s budget and the Republican-backed PROSPER Act proposed the elimination of the program for borrowers after July 1, 2019. Now, the good news is that those have all been proposals and talk, and despite its rocky past and uncertain future, we believe that PSLF is one of the best payoff strategies for pharmacists paying off their student loans if they meet the qualifying criteria because of what it means in terms of tax-free forgiveness and what you are then able to do with that money that otherwise could be going towards student loans that of course you could allocate to other parts of your financial plan. Now, it certainly has considerations. It has logistics. It has details. And you have to be crossing your t’s and dotting your i’s like we’re talking about right now. But assuming that those things are happening, it can really be a great option for many pharmacists that are facing significant student loan debt and certainly can be a viable path forward. Now, quickly on the rules for PSLF: You have to work for the right type of employer. We’re talking about that here with Stephanie’s story on this episode. You have to be working for a not-for-profit employer or government agency. You have to have the right kind of loan, and that’s really where TEPSLF comes in — and we’ll talk about that as well as the connection to the repayment plan. So that loan has to be a direct consolidated loan, and if you haven’t done that and you think you’re making qualifying payments, again, TEPSLF is an option to consider. Now, you also have to be in the right repayment plan, typically an income-driven repayment plan. You have to make the right amount of payments, 120 payments. And ultimately, you have to prove it when it’s all said and done to both apply for and receive tax-free forgiveness. So Stephanie, thanks for bearing with me as we went through that. Let’s come back to your story here. You’ve identified that you’re working for a qualifying employer, obviously you haven’t been making all the full qualifying payments because you weren’t in the right repayment plan. So you start to pursue the TEPSLF option to be able to then retroactively get those payments counted. So what did you need to do at this point in time to get to today where we now are at that point of where the money has been forgiven? What did you have to do to actually take advantage of the TEPSLF program and its requirements so that you could ultimately receive that tax-free forgiveness?

Stephanie Hale: Sure. So one of the rules of TEPSLF — and I’m going to read from their website — “to be eligible for TEPSLF opportunity, the amount you paid 12 months prior to applying for TEPSLF and the last payment you made before applying for TEPSLF must have been at least as much as you would have paid under an income-driven plan.” So I kept reading that and I was like, well, I’m not making income-based payments. My payments weren’t as much as I would have been paying, so after talking to the people at FedLoan, I decided that the best thing to do was to change to an income-driven payment plan. So I went ahead and did that. I applied in December of 2018 and the payments went from $580 up to $814. And so what I decided to do — at this point, like I said, we had a house, two kids — I decided to decrease what I was putting into my Roth 403b. I figured, you know, a year wouldn’t hurt so bad, especially if I qualified for TEPSLF and got these loans forgiven. So that’s exactly what I did. And so I applied in December and my first income-driven payment in February of 2019. And at that point too, I had asked about what was my history that they had because when applying for PSLF prior, they just said that I didn’t have the correct number of payments. But they never really told me — they don’t count how many payments you actually have for TEPSLF. They just look at your income-driven payments. So mine were at 0. And so they told me that they had some missing information I think in 2013 and they said, oh, we have those in some files that need to be converted. Just give us a call back in a couple weeks. We’ll let you know. I call back in a couple weeks, and they still didn’t have that information. They said, who told you that? Well, it will take us probably six months. I put it in my planner. So this is something that I recommend is definitely document all your phone calls and everything. I put it in my planner, I called back in six months, they’re like, no, we don’t have this converted. It’s taking a lot longer, and I don’t know who told you six months. It will be about a year. Like OK. So I just kept calling back, just to make sure that they were on top of things and making sure that they knew that I was looking into it. So I went ahead and applied for PSLF in April 2019 because I was told I had to go ahead and apply because they would have needed to know that I would have made income-driven payments for a year, not that I actually had to make the income-driven payments, which at the time didn’t make sense. I’m getting information from — different information every time I call. So like what does it hurt to go ahead and apply for this PSLF? So yeah, so that is one of the things. You have to apply for PSLF and get denied before you can — they look into TEPSLF. So I got denied for the April PSLF application in June. And then at that point, I had also submitted — you have to submit an email saying that you want to be considered for TEPSLF. And I got that denial for TEPSLF in September, that September 21. So then I went ahead and applied for PSLF again September 25 because at that point, I already had 10 years with my employer. So I figured, OK, well I’ll try for the 10 years even though it hasn’t been a year of income-driven payments. But we’ll see what happens. And ultimately, I got denied for PSLF in the end of October. And then for TEPSLF, it was just a few days after that this time. And that was — the reason for that was because I needed the payments the 12 months prior to applying for TEPSLF and the last payment had to be the income-driven payment. Then I waited and applied after my 12th payment in January, and that was January 10. I got denied January 30 for PSLF. And then I got denied for TEPSLF February 27. And actually, I found out that I was denied for TEPSLF probably about a week before I actually got the letter in an email. I had been making phone calls, probably I was calling at least once a week, sometimes twice a week, just to follow up. But yeah, so the week before I actually got the official denial, they had told me you don’t qualify because you need 13 payments. So when you apply for PSLF, there’s a box that you can check stating that you don’t want forbearance while they’re going through the paperwork. So I always made sure to check that box to make sure that I was still making payments, just in case anything happened like this. And I figured I would get the money back in the end anyways if I made too many payments. So at that point, I reapplied again, this was February 29, for PSLF. And I got the denial in March 12 for PSLF. And then I got a letter stating that I was being considered for TEPSLF May 13. And ultimately, I was forgiven May 27.

Tim Ulbrich: Wow. OK. I mean, a couple of things: This is great. And I appreciate the detail because I think it’s so important here. And as you were talking, you know, things that stood out to me were No. 1, patience.

Stephanie Hale: Yes.

Tim Ulbrich: But persistence. I mean, you went through multiple denials, making multiple phone calls, and obviously you saw the value that was going to come from having it forgiven. And I think showing to them as well, like you’re not going away, right? And so you know you’re going to make sure you get this taken care of. And if you qualify, you qualify. And you need to have that recognized. So definitely patience as many, many months and some years went by but also persistence in making sure you’re calling back and you’re following up. You know, the other takeaway I had there, Stephanie, was documentation. I mean, just so you can chronicle this verbally tells me you had great documentation along the way, which of course is important. And we’ve heard that before. We’ve discussed that before on this show. And if you run into issues, the documentation is important as well as I just think for your own sanity but also being able to prove that information in previous conversations in case you run into issues. And then I think I also heard that you’re really well-versed or at least learning along the way about the requirements and making sure you had good information and you were spending time to understand the rules and trying to interpret them so that if you were calling and you think you’ve got some erroneous advice or perhaps you’re getting different answers along the way, that when you called in, you knew that information, you could follow up with the information you learned, and you could continue to be persistent, obviously because there may be interpretations along the way, depending on who you were talking to.

Stephanie Hale: Correct.

Tim Ulbrich: So great. Yeah. I’m guessing you did get that right. I heard that you got some different input along the way when you called in. Is that correct?

Stephanie Hale: Yes. So I had learned that just because someone says one thing doesn’t mean it’s actually true. So I would call, someone would tell me one thing, and then I’d call again, someone would tell me something different. So I always made those notes. And I was like, well — I wasn’t sure what to believe. But if somebody said one thing and I hadn’t done that yet, I would be like, maybe I’ll do this instead. That’s why I applied early for PSLF those couple times. Like it didn’t hurt. And actually, I do feel like applying early those couple times kind of helped because it probably helped to move them along with counting my payments because they had already done that those couple times before. I feel like my process from February to May when I got forgiven went fairly quick compared to some of the other people that I’ve heard trying to pursue this. But like I said, I think it’s because I had applied before, and they had already had that information, me being persistent and following up.

Tim Ulbrich: And how much when it was all done, so you get to May 27, if I heard you correctly, it’s forgiven and it’s forgiven tax-free. What was the actual dollar amount that was forgiven?

Stephanie Hale: So my account balance, which I think included interested, was $69,900. And then I ended up getting about $3,800 back of overpayments. But then when I’m looking at the email of the amount of loans forgiven, it’s roughly $72,000. So I don’t believe that includes any of the interest.

Tim Ulbrich: Got it. OK. So a little over $70,000. And right now, your account balance is — so $0s are showing. Is that right?

Stephanie Hale: Correct.

Tim Ulbrich: That’s awesome.

Stephanie Hale: So one of the fun things I had learned was — so there’s an app that you can have on your phone. And when you try to log into the app if you’re pursuing PSLF or TEPSLF, once your loans have been forgiven, you’ll get this big “Caution” sign saying that you can’t log into your app, it’s no longer working. So I got that that morning. I was like, oh, this is a good sign. So then I went onto the actual website on my computer and was able to see the balance was $0.

Tim Ulbrich: That is awesome.

Stephanie Hale: So I was able to find out before they actually sent me the official notice.

Tim Ulbrich: Yeah, when you no longer can get in and the “Caution” flag, it’s a good day, right?

Stephanie Hale: Yes, it was.

Tim Ulbrich: I mean, you reached the finish line. And obviously you put a lot of hard work into this. And I think that’s what’s so refreshing, Stephanie, you know, to me, as I mentioned a couple times already, it’s just your persistence in this in terms of not only the process but making sure you felt like you were really understood the things and were getting your questions answered. But also, you know, to that, I think many folks are going to hear this story and say, “I had no idea I could look backwards and consider PSLF through this TEPSLF option.” So I think we’re going to have many people that are going to listen and are now going to pursue this, and they are probably going to hit the barriers that you hit along the way. And you know, they’re going to have to knock them down and be persistent, just like you showed us here and you demonstrated in your own story. But I sense this will give many people hope in their own journey and ultimately as we talk about the bigger picture here with your financial plan, what it means when you don’t have to be putting money towards student loans because you can allocate that elsewhere into your financial plan. So I want to just quickly outline for those that are hearing this and thinking, OK, maybe I qualify for TEPSLF. There’s really four steps that you need to be thinking about. No. 1, you have to check your PSLF eligibility. And we talked about that already throughout Stephanie’s story. Are you working for the right type of employer? The right loan? And as we talked about, that’s really where this TEPSLF comes in and really where the issues are in terms of making sure you’re in the right repayment plan, right number of payments, ultimately 120. And then you’ve got to be able to prove it and apply for that tax-free forgiveness. Now No. 2, as Stephanie mentioned, you have to show that you’re ineligible for PSLF. So you have to submit your application, and you essentially have to get denied and be determined ineligible. And then you really have to be looking at meeting the TEPSLF requirements. And that’s No. 3. And Stephanie talked about this with the need to switch to income-driven repayments, the number of payments that had to be made, and the dollar amounts associated with that. And for you, as you mentioned, that meant a temporary increase in payments, a little over $200 a month, which meant knocking down some of your retirement payments temporarily because you saw the bigger picture and what could be forgiven. And then finally, No. 4 is you have to request the TEPSLF certification, and you can do that through email. There’s actually not a form. So to do that, it’s [email protected]. Again, [email protected]. And we’ll link to that in the show notes as well as some information on studentaid.gov that actually includes some draft language and examples that you can use when doing that communication via email. So Stephanie, my final question for you, now on the back end of this and you went through this long journey to get here, you know, what does this mean for you and your family and your financial plan both monetarily in terms of having more cash flow available because it’s not going toward your student loans as well as just non-monetary, what this means in terms of having this off your back?

Stephanie Hale: Well, definitely a weight off my shoulders. I’m the breadwinner, so that was just something that was taking a toll on me and just even though I’d already been paying for 12 years or so, it was just — it was so nice to not have to think about that anymore. And financially, we’ve been tossing around the idea of getting into some real estate investing. But if we don’t do that, I mean, we do have two kids, so we want to start putting away more for their college and just being able to save more and have a more comfortable retirement or even be able to retire a little bit earlier.

Tim Ulbrich: Awesome. Yeah, that’s great. I mean, I think the options that are available certainly go up, whatever that would be as a part of your financial plan, and goals when you don’t have to make those payments anymore. Any words of advice you would have for folks that maybe find themselves in a similar position as you did where you already had several years in of meeting that employment qualification or even perhaps folks that are even more in the front end of this and really looking at this to say, is this really worth it, considering all the logistics and everything that you’d have to do? What thoughts and advice do you have for them?

Stephanie Hale: Well, I definitely want to say there’s a really good Facebook group called Public Service Loan Forgiveness program support. I joined that, and they — you can ask any questions there, you can look up, you know, if you have a question, you can look up whatever you’re looking for. And somebody probably has asked that. But they were very supportive. And it definitely gave me hope because people would post whenever they got forgiven, and it actually — the funny thing is it comes in batches. It’s like they forgive a group of people at a time. So there will be no activity for awhile, and then all of a sudden within a week there’s probably, you know, I don’t know, 15-20 people posting that they were forgiven. But if you search #PSLFvictory or #TEPSLFvictory, you can see people’s stories of being forgiven. So it definitely gave me a lot of hope. And a lot of people there too talk about the Freedom of Information Act. You can request your paperwork for that. And a few have issues with any payments that were missing. Luckily, I did not have to do that. And other people also asked for the help of an ombudsman, which is somebody that’s assigned to you to help you through the process if you’re having issues. Again, I didn’t have to do that either. But those are different options that you can have, that you can use, if there’s issues with your payment history. And I was looking yesterday and it looks like there’s roughly about $600 million left with TEPSLF. They expect it to last another 2-3 years. So if it’s something that you’re considering if you’ve worked for your employer for close to the 10 years, made the 120 payments, definitely look into it now and try to get that straightened out before then because it will run out.

Tim Ulbrich: Great advice, Stephanie, encouragement. We’ll link to that Facebook group as well as other resources we’ve talked about on today’s show in our show notes that we publish. And you can find those show notes by going to YourFinancialPharmacist.com/podcast and finding this episode, Episode 176. And then we’ll have all of that information right there. Stephanie, I really appreciate you taking the time to come on the show to chronicle your TEPSLF journey. Excited to have you on officially as the first pharmacist that we have interviewed that has had their loans forgiven. We know there are others out there, and we hope and plan to feature more stories in the future. And as always, to our YFP community, if you liked what you heard on this week’s episode, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And I hope you’ll join us if you haven’t already in the Your Financial Pharmacist Facebook group, over 7,000 pharmacy professionals committed to helping one another on their path towards achieving financial freedom. So thank you again all for joining, and have a great rest of your week.

 

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YFP 175: How to Reduce Costs During the Residency Application Process

Posted on by yfpadmin


How to Reduce Costs During the Residency Application Process

Sarah Cummins, a PGY2 Emergency Medicine Pharmacy Resident, joins Tim Ulbrich to talk about specific strategies to make the residency application process more affordable.

About Today’s Guest

Dr. Sarah Cummins is a PGY2 Emergency Medicine Pharmacy Resident at the University of California Davis Medical Center in Sacramento California. Prior to this position, she completed her PGY1 residency at Thomas Jefferson University Hospital in Philadelphia, PA and earned her Doctor of Pharmacy degree from Purdue University in West Lafayette, IN. Dr. Cummins’s clinical/research interests include trauma resuscitation, acute pain management, optimizing healthcare access to underserved populations, minimizing healthcare disparities in BIPOC, and emergency department transitions of care. When she isn’t working, Dr. Cummins enjoys hiking, caring for her blind dog named Muffin, reading novels, and any sort of activity that takes place on a patio.

Summary

Sarah Cummins, a PGY2 Emergency Medicine Pharmacy Resident at UC Davis, is passionate about helping other pharmacists reduce the cost of the pharmacy residency application process. Although Midyear and interviews may look a bit different during the COVID-19 pandemic, the tips Sarah shares are still powerful ways to save money.

Sarah breaks her tips into six categories: how to save money before interviews, Midyear, travel, eating, where you should spend your money and some general advice.

Prior to sending in applications or going to interviews, Sarah says that you first have to figure out your goals and create and execute a budget to help you reach them. For example, she suggests beginning to save during your P3 year and to ask for gift cards from family and friends in lieu of material items so that you can purchase professional clothes or other necessities.

Midyear is virtual and free this year due to COVID-19, however it’s normally $340 for a student member and $480 for a non-member. Sarah explains that Midyear is usually in an expensive city, meaning you should really do your best to save money on other expenses like food costs.

Sarah explains that there is the potential to save the most money with travel expenses if you’re willing to put the time and work into doing so. She shares that you have to put all methods of travel into a side-by-side comparison so you can see which method or hybrid of methods is going to be the cheapest. It’s easy to spend a lot of money on food and coffee while you’re traveling. Instead, Sarah suggests packing granola bars, packaged foods and drinking the in-room hotel coffee to save some money and time.

While there are many aspects of this process that you can save money on, Sarah explains that you should spend money on things like professional clothes you feel confident in and to make sure you’re staying at a comfortable and safe location.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Sarah, thank you so much for taking time to come on the show.

Sarah Cummins: Thank you so much for inviting me. I’m happy to be here.

Tim Ulbrich: So our conversation began over the summer on LinkedIn, and I knew what you shared would fit so well in the fall as P4s are gearing up for the residency application process and really also for preceptors that are listening, faculty members that are listening, that they can also share some of this information with the students that they may be mentoring, coaching, helping along the way. And before we dig into your tips and tricks for making the residency application process affordable, I’d love for you to share a little bit about yourself. So tell us about your pharmacy career, what led you ultimately into pharmacy and how you’re able to determine the path that you want to take in terms of residency training.

Sarah Cummins: Sure. So I started out at Purdue University in Indiana, which is where I’m from.

Tim Ulbrich: Go Boilermakers.

Sarah Cummins: Yes, yes. So I grew up in Indiana, went to school there, then I did my PGY1 residency in Philadelphia, Pennsylvania at Thomas Jefferson University Hospital. Then I drove 3,000 miles across the country to go the UC-Davis in Sacramento for my PGY2 in emergency medicine. I think I originally got into pharmacy because the same reason that many of us do — because we’re nerds and we like science and we like helping people. And I really liked the aspect of this career where I felt like I could make a difference in patients’ lives face-to-face, talking to them and helping them manage their diseases versus some of the other healthcare professionals where you don’t get as much face time as you do with pharmacy. And I really liked that.

Tim Ulbrich: And when did you know emergency medicine was the path that you wanted to take?

Sarah Cummins: That one was a little bit of a quick decision. So I had originally thought I was an infectious diseases person all the way. I love ID. I did my bachelors in microbiology and biochem. I had done ID research. I love bacteria. I think they’re so cool. But then I did an APE (?) in the emergency room, and I was a little shocked at how much I really enjoyed it. So then I started second-guessing myself, wondering if maybe I was an EM person instead of an ID person. I did an EM rotation during my PGY1, and that kind of sold it for me that I was actually an EM person instead of an ID person. I think I made the right decision. I feel very at home, I feel like this is my niche. And I’m really excited to go to work every day, and I think that that’s all we can really hope for with careers is just being really happy with what we do.

Tim Ulbrich: Absolutely. And the irony — you know, we’ll talk obviously about mindset around spending and frugality — and the irony that you ended up in California where cost of living is high, but thankfully you had some behaviors and strategies in place that could help you manage some of that. And really, what I want to spend our time on today is that you had tweeted an amazing list of topics about how to make the residency application more affordable, where folks should consider spending money, where it’s worth it, cutting where it’s not, and some general advice to those that are starting this process. And you know, I should mention, disclaimer here, we are obviously fall 2020, given the situation with COVID-19, you know, this residency recruitment-application-interview cycle, it’s going to look different than any other one that we’ve had before. And so some of that we don’t yet know at this point, some of it we do in terms of things like ASHP Midyear of course being virtual. Will all interview be remote? Will some be on site? I think it’s probably leaning towards remote but certainly that’s a ways off as we think about the February and March timeframe. So for those that are listening, you know, P4s applying this year during the spring 2021, going into the match that starts July 2021, obviously we’re a unique situation, but we expect others in the future, we might be back in more that traditional environment. So before we get into these strategies that you mentioned, one of the things I was asking you before we hit record — and really, one of the things that impressed me when I first ran across what you shared on this topic is I could tell you had really an intentional mindset around your finances, but specifically, you had a mindset around being frugal. And I think here, it’s important that we’re talking about places where it’s important that we think about cutting but also places where we think it might be important to spend some and that that’s OK where it’s worth it. So where — my question is where does that frugal mindset come for you? Where did that start?

Sarah Cummins: That is such a great question, and I don’t actually have an answer for you. I don’t really know. There isn’t one pivotal moment in my life where I learned this. No one really taught it to me. I think it came from pressure of not having financial resources as a student and not having support with family, friends, and whatnot financially going through this process. I’ve always been the kind of person that I don’t do anything halfway. If I’m going to do it, I’m really going to do it. And I put a lot of work into figuring out exactly how I could afford this because my resources were very limited. I made a goal to go to Midyear, I made a goal to apply to the programs I wanted to all over the country, and I planned accordingly to make sure I could do that. And I think the skill that I learned from that that was very difficult for me to understand at first and I think very difficult for a lot of people who are financially limited is to plan ahead. So many times, you know, when we don’t have resources, we don’t have a lot of money, we just think about the here and now. How am I going to afford my bills this week, this month? Where can I cut costs on my groceries this week? But I’m not thinking about what I’m going to be paying for eight months in advance. And that’s something that’s kind of a difficult mindset for people to adopt when they’ve never really had to do it or where they’re always in this fight or flight mode on how they’re going to survive each week. So that was something I really had to push myself to do.

Tim Ulbrich: Yeah, and that’s great input. As we talk often on the show about the intentionality of the financial plan, thinking ahead, planning ahead, thinking long-term, which is hard, especially when you think about in the position of a student where you obviously have a limited income and certainly may be in a debt accrual with student loans. And so as you put together the time and the effort to share this list out, what were some of the motivations of doing that? Obviously it was near and dear to you and your own plan, but did you also see others that were struggling with it?

Sarah Cummins: Absolutely. So I saw a lot of students posting on Twitter, residents posting on Twitter, just kind of venting how frustrating it is that this process is so expensive, sharing how difficult it is to afford this, sharing their fears. And I really just wanted to provide a little bit of hope and a little bit of encouragement to those students who are in the same situation that I was in where you have to really work a real full-time — or I mean part-time job to fund your expenses. And I think that the post definitely achieved that. A lot of people messaged me, sharing their thanks for just reaching out and saying, “Hey, it’s possible. It’s hard, but it’s possible.”

Tim Ulbrich: And I’m so glad you did, Sarah, because as you know, as I know living through it, as our listeners know living through it, P4 year, that final year is often when things fall off the tracks financially, right? So you’ve got — you know, obviously you’re in a transitionary year, so depending on where you’re doing your rotations, you may be going out of the area, you have additional transportation expenses, additional housing expenses, you may need additional professional clothes, other things. Expenses add up. Obviously busy hours, you tend to maybe have to eat meals on the go, so you have lots of expenses that come with rotations. But then you also have many schools, the tuition and fees are higher in the fourth year when you’re doing experiential rotations and then on top of this, you have — whether it’s residency, a job, combination of both — you’ve got the additional expenses that are associated here. So I think sometimes I see — and I don’t know if you saw this with your classmates where — you know, I see this among students where they’re like, my gosh, I’m already $160,000 in debt, like what’s it matter at this point, right?

Sarah Cummins: Yeah, just add it to the tab.

Tim Ulbrich: Yeah, and I think again, what we’re talking about here is whether it’s $100, $1,000 or $10,000, the intentionality and the mindset and having really the processes, whether it’s a budget, this long-term thinking, to really be able to see the benefits of this and other parts of your financial plan in the future are really important. Do you — just as a general ballpark, what do you think on average students are spending when you think about the residency application process? I mean, you’ve got the applications, you’ve got Midyear, you’ve got travel, you’ve got professional clothes. Like what do you anticipate that number is?

Sarah Cummins: Thousands. I know it’s thousands. It’s definitely different for each person, so going to Midyear in and of itself is very expensive. So if for whatever reason you don’t go to Midyear, you can cut a large portion of that out. But even the application is expensive. So the NMS match fee is $160. The forecast fee is $110. That gets you four applications included. So if you want to apply to more than four programs, you’re going to be paying $43 apiece for every additional program. So just to submit your applications, if you want to apply to 10 programs, which is what I feel like a lot of students do on average is $528 just to try.

Tim Ulbrich: Yeah, and as we know, if that is borrowing money, it’s going to cost more at some point, right? It just accrues and things into the future. So we’re going to go through, as I mentioned, you put together this list and you broke up these tips into six main categories. No. 1, how to save money before interviews. No. 2, things to think about at Midyear. 3, on the traveling side. 4, eating while you’re traveling. 5, where you should spend your money, so essentially permission granted, where it’s worth it. And then 6, some general advice. So let’s start with this first category, prior to interviews. And you start off by sharing some advice for people before they even send applications in or have interviews lined up. So what’s some of your advice here? And why is this important?

Sarah Cummins: So I think that this is actually probably the most important part and where you could potentially have the most cost savings because I think the first thing you need to do is figure out what your goals are. You need to figure out if you are going to be applying to programs near home, if you’re going to be looking all over the country, and then you need to make a plan on how to budget for that, how much money you can expect to have to pay and then execute that plan. So I think for a student that is — I’m going to just pick the most expensive example. So let’s say you just, you really want to do it, you’re going to apply all over the country, you’re going to go to Midyear, you’re going to go all out. Start saving early, like P3 year early. One thing I did, if you have anybody in your life that likes to buy you birthday gifts or holiday gifts, ask for gift cards. So I asked for gift cards to Macy’s department store because I know that they have a pretty good selection of suits and business clothes. And they also have pretty good sales sometimes. So I asked for gift cards early on during P3 year so that way I could start to collect a wardrobe, some nice shoes and some other things to wear to Midyear because if you wait until the last minute to do that, that’s just going to be another expense added on top of it if you don’t plan on anything to wear to these interviews and PPSs. Another thing is just registering for Midyear is expensive. So as a student this year, it is actually free because of COVID, which is incredible. Snaps to ASHP for that. But last year and every other year, it’s not free. So the registration fee is different depending on whether you’re an ASHP member or not. If you’re a student member, it’s $340. But if you’re a non-member, it’s $480. And this is a really easy place to save money because if you just register for a membership, it’s $54. So you can save like almost $80 if you just do the membership and then apply as a student member instead of not being a member and applying as a non-member. So do your research on that, make sure that you aren’t paying more money for registration than you need to. The other thing with planning to go to Midyear is once you have everything that you need to wear and you have your plan, what kind of programs you want to start looking at and you are starting to think about flights and hotels and stuff, then that becomes a lot more work. And I think that is the most time-intensive part of this.

Tim Ulbrich: Great advice, Sarah. And one of the things I wanted to add here as you think about number of applications, in my experience working with students going through this process, you know, I’ve worked with some students that applied to one or two sites and to 22 sites and everything in between. You know, you mentioned 10 is a pretty good number that you see out there. I would agree with that. I mean, I think most students are probably applying to somewhere between 8-12 sites. But where I really am encouraging the listeners to think about is you have to do some really serious self-reflection to really identify what factors might determine how many sites you need to apply at. So you’re looking at obviously things like the reputation of those programs, how many applications might they be getting, how selective are they, geographic types of things, the cost that’s going to be associated with the travel, how strong of a candidate are you, how well-networked are you with that, have you worked there, have you had a rotation there? And all of those things should have a significant impact on how many sites you’re applying to. And I think there can be a challenge, especially for the all-stars out there that are listening, you know, those that have really strong connections, have done all of their things along the way well to make themselves a strong candidate, there can be a feeling in the moment of oh my gosh, match is so competitive, they look at the national match statistics, and then they apply to a bunch of places. For some, that’s necessary, and for others, it’s not. So I think really doing some reflection to determine what that right number is or working with some advisors at the college or others that can help you do that is really important.

Sarah Cummins: Definitely.

Tim Ulbrich: Let’s talk about Midyear for a moment. You mentioned the registration fee, which of course, obviously this year in 2020, we have, again, somewhat of a unique situation. But we know that’s just one piece of the puzzle when it comes to costs associated with Midyear. So talk to us about other strategies here that people can be thinking about for how to save money as it comes to Midyear. And here, obviously we’re talking about more in the traditional sense of in-person Midyear.

Sarah Cummins: Yes. So Midyear, historically, takes place in one of four cities: New Orleans, Orlando, Las Vegas, or Anaheim. So those are the only cities that have enough conference space to hold the vast amount of pharmacists and students that are drawn to these conventions. So this has been done before. People have gone to all of these cities before, found the cheapest place to live, there’s probably a lot of people who have advice out there. So any students that are wondering where the cheapest spots are, where you can get a good deal at, feel free to just tweet it out and ask, “Hey, who went to Midyear in Anaheim? Who went to Midyear in Orlando? What did you do?” And those people might have a little bit of advice to contribute. But something that all of these destinations have in common is they are expensive to go to. So one thing that’s really hard to budget for is all the food and unexpected costs that you’re going to accrue there. So you think about, OK, I’m going to pay for my hotel, I’m going to pay for my flight, I get there, then what? Sometimes that airport is a substantial distance away from where your hotel is. And those Ubers, Lyfts, can be $50-60 one-way, especially in some of the bigger cities. And this counts for interviews too. So one thing that I do is I do my research on the public transportation system. So a lot of — some of these cities don’t have a lot of great options for public transportation. But most of them have buses. And buses are cheap. They do take a long time, however, so if you can plan to have an earlier flight where you have a little bit more time to get to your hotel, look into getting a bus ticket for $2.50 compared to spending whatever the surprise cost of the Uber or Lyft is going to be because that is not a discreet cost. It’s going to be a random number, depending on how busy they are.

Tim Ulbrich: Yeah.

Sarah Cummins: Another thing that I spent more money on than I thought I was going to spend, even though I planned for it, was food.

Tim Ulbrich: Yes, yes.

Sarah Cummins: So you wake up in the morning and you’re in your hotel room, you’re starving, you just traveled all day, so what are you going to do? You’re going to go down to the Starbucks, get a coffee, maybe a granola bar or a muffin or something. And then it’s $12 because that’s what it is in Las Vegas. I paid for a banana that was $9.

Tim Ulbrich: And you have no choice.

Sarah Cummins: Yeah.

Tim Ulbrich: Yes.

Sarah Cummins: And that’s it because you’re starving, you’re exhausted, and that’s what you need. So something that you can do to mitigate these costs is to plan for being hungry. I called ahead to hotels to see if they offer in-room coffee because some of them have that cheap coffee that you can make just in your room.

Tim Ulbrich: That’s right.

Sarah Cummins: That’s great because it’s $0. It’s a little bit of an appetite-suppressant, so it can tide me over until I can eat breakfast somewhere. Also, if you’re going to be going to Midyear for a couple days, you’re probably going to check a bag, which costs about $30. But it’ll save you money in the long run versus just trying to shove everything on a carry-on bag because you can fill that bag with snacks and food. I put a couple boxes of granola bars, I had some Easy Mac cups because I called and asked if my hotel room had a microwave. And those — just having that little bit of food available was really a life saver because it saved me a lot of money, and it saved me a lot of time from having to go to a restaurant or wait in the ungodly lines at the cafes.

Tim Ulbrich: Yes.

Sarah Cummins: And you don’t think about that cost when you’re planning your trips. You just think about the major expenses. But that really adds up. I think I would say I probably saved maybe $200 just by planning for the coffee and the food alone.

Tim Ulbrich: As you’re talking, Sarah, I’m just — I’m smiling as you’re talking because I’m thinking of all of the Midyear meetings that I’ve been at as a student, as a new practitioner, on the other side interviewing, where some things — it’s like, it takes so long to learn some of those lessons. But where you’re standing in those long lines and you’re not only waiting but then you’re spending $20 for coffee and a muffin, you’re frustrated, and then you’re still hungry and you’re off sync with how you normally are and all of these things. So I think preparation here and planning is so important.

Sarah Cummins: Yeah. And the — I don’t know if I’m using this word right, the opportunity cost of when you’re very, very hungry is different when you’re not very hungry. So you’re more likely to spend more money on food if you’re starving versus if you’re not starving because you have more time to plan for it. Another tip that I have if you’re going to go to Midyear is this thing called the industry showcase. So at first glance, you might not think that that’s for you as a student because it’s basically a bunch of pharma companies and tech companies that set up booths to showcase their products. But this is an absolute gold mine for hungry students. Last year, I got free espressos, like individually wrapped sugar cookies, snacks, they gave out water bottles. So basically you just go up, you get snacks and food and stuff and just take a pamphlet, pretend to be interested, and then just go on your merry way. It’s incredible. So most students don’t venture in there because they don’t see a need to. They’re not a hospital looking for new technology. But are you thirsty? Do you want a free water bottle? Go for it, it’s great. You won’t regret it.

Tim Ulbrich: That’s great. I mean, the specific advice you have here is fantastic. You know, for the preceptors that are listening, they’re probably smiling as well. But I hope the students are taking notes. And these things add up. It’s a combination of planning ahead, it’s a combination of getting creative, cutting expenses while you’re there, and hopefully together, some of these will have a real impact. We’re really just getting warmed up, right?

Sarah Cummins: Yeah.

Tim Ulbrich: So we talked about the cost of applications, we talked about the cost of Midyear, which even in this year is of course going to be significantly different. But we haven’t yet talked about traveling. So when it comes to traveling for interviews, you know, I know for many folks this can look very different if they’re maybe just applying in one region where they live and their college is versus those that are looking across the country. So what pieces of advice here do you have in terms of traveling for interviews?

Sarah Cummins: I have a lot. And I think this is the piece of this whole thread and podcast that is potentially the most cost-saving. So it takes a lot of time to do this. But it’s really worth it in the end. You need to do your thorough research on the cheapest way to get to and from an interview or Midyear. So you need to look at prices of driving, flying and public transportation. So driving, estimate your gas costs. And don’t just like guess. You can go online and Google “gas price calculator” and figure out for the exact make and model of your car how much money you can expect to pay for what the current gas prices are because those fluctuate each year. Sometimes it’s very expensive, sometimes it’s not. Additionally, if you’re going to be traveling for several hours to wherever your interview site is, a lot of people use toll roads. They’re much faster, it saves time, but it costs money. There’s this website called TollSmart.com. And you can use it to calculate toll fees anywhere in the country. You just type in your start address and then your destination address, and it’ll show you the route that you would take using toll roads to see how much money that costs because who knows how much toll roads cost off the top of their head? I’ve never met anybody. I have no idea.

Tim Ulbrich: No.

Sarah Cummins: It’s just a guess, it’s a surprise. Sometimes you need cash, sometimes you can use card. No one ever knows. It’s just a big mystery.

Tim Ulbrich: That’s right.

Sarah Cummins: So if you plan ahead for that, for the gas, another thing you need to plan for if you’re going to drive is parking because a lot of times, hotel parking is not free. $40 a night, $60 a night, depending on where you go. In some of the bigger cities — and even in some of the smaller cities, you can use this app or website, it’s called Spot Hero. So you can just go to spothero.com, and basically what it does is it shows all the available parking spots in garages, in lots, and you can compare prices of how much money you’re going to pay to leave your car in that lot or that parking garage from the time that you arrive to the time that you leave.

Tim Ulbrich: That’s awesome.

Sarah Cummins: And it can be substantially cheaper than parking at your hotel. Another thing to do if you’re planning on driving is try to pick an interview day on a Monday or a Friday so that way Sunday you have plenty of time to drive and you’re not going to be rushed, especially if you’re going to be driving like 10-12 hours or something crazy like that. And then Fridays, you’ll have plenty of time to drive that evening or even the next day if you need to. So that’s always nice. For flying, the best case scenario is always to find a flight that arrives the day before the interview and then have a return flight right after the interview has finished, the next day in the evening. But that’s usually not the cheapest flight. So again, you’ve got to do your research. It might actually be cheaper to stay an extra day and pay another $80 for your hotel or Airbnb and then take the early morning flight the next day. I did this, and it saved me over $200 for one interview. And then the last mode of transportation is public transportation. Some places, they have trains that go in between big cities if you’re someone that’s coming from a big city. I was not. But Megabus is a life saver. Megabus, I love Megabus. Shoutout to Megabus, you’re awesome. You can buy a bus ticket on one of this double-decker bus, and they are cheap. They are — you can ride on a bus for nine hours for as low as $3.50 after taxes and fees. And I did this for one interview. I rode the bus for nine hours one day, and then went to my interview and then flew home the next day with a one-way ticket.

Tim Ulbrich: Oh, cool.

Sarah Cummins: And that saved me over $150 compared to doing a round-trip and flying on Sundays. Because flying on Sundays is so expensive.

Tim Ulbrich: Yes.

Sarah Cummins: There are also seats, there are eight seats on each of these buses that are — have a table in front of them. So you can have like a little cup holder and a table, you can get your laptop out and do some schoolwork or whatever you want to work on, prepare for the interview, while you’re actually on the bus, which is what I did. So it was a great, great use of my time. So then you can do a hybrid of these options. So you can look into the price of a one-way car rental to drive on Sunday, show up for your interview Monday, fly home with a one-way ticket. It’s a lot of work putting all these side by side for every single interview, but trust me, it’s so worth it.

Tim Ulbrich: And one of the things, Sarah, I remember you wrote about, which really resonated and I want to make sure the students hear is not being afraid to ask the site — whether that’s the RPD or somebody that they have delegated that responsibility of coordinating interviews, I think generally speaking, the sites want to be amenable and want to work with folks if it’s going to help save them money, time, coordination. So whether that’s stacking interviews if you’re going to be in a certain area so you don’t have to travel twice or I remember you had written about just a schedule and by asking a question, they were able to move something around by a half hour so you could take a flight out that day that was cheaper. So you know, I think being open — and obviously there’s a respectful, professional way to do that — but not necessarily feeling afraid to have some of those conversations that could have cost savings depending on the mode of travel and where that interview is taking place.

Sarah Cummins: Definitely. So I feel a lot of students don’t want to be the person that looks like they can’t figure it all out themselves and aren’t completely independent and savvy and they don’t need any help from the RPDs. But you know, they want you to be there. They want you to be able to be comfortable and to have plenty of time. I remember I emailed an RPD and I asked, “I know my interview ends at 4. There’s a 5 o’clock flight at the airport. Do you think I would have enough time to make it from the hospital to the airport and make that flight? Because it’s $200 cheaper than all the other flights. And I would like to save that money if possible.” Every person can understand this, so she was great and she said, “Traffic is minimal. Security is minimal. And I can bump your interview date up half an hour just to give you a little bit of extra time.” And it was awesome. So they’re experts. They live in that city. They know their way around. They know like don’t take this rail from the airport to the hospital because it’s generally not very safe, or don’t stay in this area or fly into this airport instead of the main airport because it’s a lot cheaper or faster. They have all these tips. They live there, they travel there. And I don’t know if I’ve met one RPD that would not gladly share that.

Tim Ulbrich: I agree. And as someone who has served on both sides of this in terms of the applicant as well as an RPD, I think often if schedules are sent, people are busy, they’re trying to coordinate a lot of things, and sometimes just somebody asking that, and they’re willing to work with it. So don’t be afraid to ask that question. Next category, we talked a little bit about this with Midyear and packing food, but eating while traveling. And I think this is obviously a piece that is often missed when thinking about saving money in the residency process. But just like if you were at home, eating out can be really expensive. So give us some general tips or thoughts that you have on how folks can save on eating and food expenses while they’re traveling.

Sarah Cummins: Definitely. So one thing I noticed that I didn’t really prepare for I guess when I was interviewing is that sometimes I would be interviewing on one side of the country one day and then a few days later, be on the other side of the country the next day. And those time changes are different. So I got hungry at very odd hours. Like I would wake up in California at 4 a.m. ready for breakfast and there’s no places that are breakfast because I’m used to that being 7 a.m. on the East Coast. So I always packed some granola bars, some packaged foods. I’m not going to recommend you check a bag for interviews just because that’s a wasted expense. So you can’t like make food like a sandwich or something and bring that on the plane. It has to be prepackaged. So I’m a big fan of those little packs of Goldfish crackers, again, mac and cheese noodle cups, those kind of things are always not a bad idea to have on board. But just making sure that you’re not in a situation where you’re unprepared and you’re going to be tempted to buy food in the airport or buy hotel food or have to run out before your interview because you’re hungry and you really wish you had coffee and you didn’t think about that. And then it’s stressful, it’s expensive, and then you get home and you’re like, wow, how did I spend so much money? I didn’t even notice that that happened. Just being prepared for that is I think the best way to prevent it.

Tim Ulbrich: I agree. And as someone who likes to eat every hour or so when I travel, I swear, airports and hotels are like the death of me when it comes to food, options, costs. I generally eat more at home and am somewhat of a picky eater. So it’s not only expensive but it’s like ah, you can’t even always get what you want.

Sarah Cummins: I know. And don’t even think about that minifridge either.

Tim Ulbrich: No, no, absolutely not. Don’t even open it. Yeah. So we talked about where we can cut back. And I want to end by talking about where you should spend money. So there’s obviously there’s going to be some costs that applicants have to incur and some areas where maybe they shouldn’t try to cut corners. So talk to us about those areas where you have felt like, you know what? This is an area where you don’t necessarily want to invest a bunch of time and resources to try to cut back but rather give permission to spend.

Sarah Cummins: Definitely. So I think the one area that I felt personally I was going to spend the money was on my interview suit. So I feel most confident when I’m wearing clothes that fit me very well, that I think look nice, and when I’m going to an interview, I don’t want to be uncomfortable, I don’t want to be worried that my outfit looks weird or just something doesn’t — just doesn’t look very put together. So I saved up and I got a very nice suit. So I guess my definition of very nice might be a little bit different than everybody else’s definition of very nice. But I got a matching suit and had it tailored to fit me. And what I did basically is just rewore that one suit instead of getting a bunch of less nice outfits, less expensive outfits. One thing that’s a life saver if you’re going to be rewearing suits, instead of getting it dry cleaned between each interview, that can be really expensive: hotel steamers. So if you call ahead to the hotel and ask them to put a steamer in your room, pretty much every hotel I’ve ever called have steamers available. You just have to ask for it.

Tim Ulbrich: Ah, I didn’t know that. OK.

Sarah Cummins: Yeah, yeah. So also starch spray is your friend. So if you just like want to iron it out and put a little starch spray on it, fold it very gentle inside your carryon and take it out first thing and then steam it, it’ll look brand new. And you won’t have to get it dry cleaned over and over again because it’s free to use a steamer versus getting it dry cleaned. So I think that spending money on my outfit helped me feel more confident and I think probably in the long run helped me be more relaxed during the interviews. Additionally, I think another place to feel OK to spend a little bit more money is if there aren’t many hotel options or perhaps the hospital that you’re interviewing at isn’t in the best part of town is to make sure that you feel comfortable and safe where you’re staying. One of my interviews, I remember specifically the hotels were like over $200 a night, some $300 a night really close to the hotel. And I opted to get a cheap Airbnb instead, and that was a huge mistake. It was not a safe part of town. I felt very uncomfortable. And the Airbnb did not have any of the amenities that I needed. I usually don’t pack hair dryers because most places have them. But I did not realize or did not look for the hair dryer until after I had showered in the morning before my interview. But there was a space heater, so I just was pressing my wet hair up against the space heater to try to dry it. Oh, it looked horrible. But spend the money on somewhere that you’re going to feel safe, somewhere that you’re going to feel comfortable because you don’t want to be stressing right before the interview. You don’t want to be worried about it or not get a good night’s sleep because that’s definitely going to show in your interview performance the next day.

Tim Ulbrich: And Sarah, these are fantastic tips. They’re specific, they’re actionable, they’re ones I’m thinking, man, I wish I would have known some of this. But I’m glad we can share this with students that are out there, again, preceptors that are helping coach or mentor students, hopefully they’ll be able to find this information valuable. And I want to close by coming full circle to where we started tonight. And I mentioned I think the mindset piece is something that I hear as you’re talking, I know I read it when I first came across your content. I know you said, yeah, I’m not really sure exactly where I can pinpoint that. But I can tell you through our conversation, it is clear to me that you have an intentionality around your spending, around your money. We talk all the time on the podcast about the importance of that intentionality, of finding your why, of really aligning your spending and spending money where it’s important and not spending money where it’s not important. And I can tell that you have that. And I am so excited to see where not only your professional journey goes but where your financial journey and the impact that you’re going to have on the trainees that will work with you, whether that’s students on experiential training, residents, peers, and the others that you will be able to influence. So I appreciate you taking the time to come on the show to share this information and the tips, the advice that we’ll be able to share with the group applying this year as well as in the future. And my last question for you is where can our listeners go to connect with you further and perhaps follow your journey along the way?

Sarah Cummins: Thank you for all of those kind words. I really, really appreciate it. As far as where students can contact me, I do have a Twitter that I’m fairly active on. I’ve had quite a few students DM me with question about Midyear or my experience or just how to afford this crazy process in general, and I’m more than happy to answer any questions from anybody. You can find my Twitter at @SC_PharmD. And that’s probably the easiest way to reach me.

Tim Ulbrich: Awesome. We will link to that in the show notes as well as some of the other sites that you mentioned throughout the episode. Again, appreciate your time coming on the show. I know this information is going to be valuable. And for our listeners, if you like what you heard on this week’s episode of the podcast, please leave us a rating and review on Apple podcasts or wherever you listen to this show each and every week. And if you haven’t yet done so, I hope you will join us in the Your Financial Pharmacist Facebook group, over 6,000 pharmacy professionals across the country committed to helping each other on their path towards achieving financial freedom. Have a great rest of your week.

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YFP 174: How to Evaluate Employer Benefits During Open Enrollment

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How to Evaluate Employer Benefits During Open Enrollment

Tim Baker and Tim Ulbrich discuss how to best evaluate your employer benefits as you get ready to make selections during open enrollment.

Summary

On this podcast episode Tim and Tim discuss open enrollment for pharmacists and how to evaluate employer benefits during this period. They discuss health, life and disability insurance, retirement plans and HSA and FSA accounts. As a YFP financial planning client, a CERTIFIED FINANCIAL PLANNER™ works with you to understand your benefits and choose the options that work best for you and your financial plan.

Tim Baker explains that pricing for medical plans can vary greatly depending on factors like age, location, tobacco use, whether the plan is for an individual or family and the plan category (i.e. bronze, silver, gold, platinum). When it comes to deciding which plan is going to work best for your needs, Tim suggests choosing a plan that will match your use best and to not pay for a more expensive premium if the coverage isn’t being used. Similarly, if you don’t have an adequate emergency fund, it may not be wise to pick a high deductible health plan (HDHP). Tim shares that you have to think about your life plan, age, whether you have pre-existing conditions and how often you’ll need to go to the doctor when deciding on a health plan.

When it comes to life and disability insurance, Tim suggests having coverage if you have a spouse or a family that’s reliant on your income. However, life or disability insurance offered by your employer may not be sufficient. If that is the case, you’ll have to look into purchasing additional coverage. Tim also discusses employee sponsored retirement options like a 401(k), 403(b), or TSP as well as stock options, FSA and HSA accounts.

As we are in or nearing the open enrollment period for many pharmacists, Tim recommends taking a look at what’s being provided or offered by your employer, asking your HR department for help and being intentional with your decisions as these benefits are an often overlooked part of a financial plan.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tim Baker, excited to have you back on the show.

Tim Baker: Yeah, thanks for having me. It’s been a long time since I’ve been on I think a full episode.

Tim Ulbrich: So today, we’re talking all about evaluating employer benefits, navigating open enrollment. Obviously the goal is to provide that information heading into that season. So Tim Baker, you talk with our financial planning clients at YFP Planning about evaluating and understanding the employer benefits. So why is this an important part of the financial plan and something that needs to be covered among other topics?

Tim Baker: Yeah, so I think there’s really two different ways to look at it. You can look at it as like a new hire to a company and evaluating the compensation package in total, so you know, basically salary and all the other benefits that come with the offer, versus kind of your in the company and you’re just evaluating the package that comes up for open enrollment every year. I think we’ll probably focus more on the latter. But I think this is really important. And I sometimes see this with clients or kind of after the fact with clients where they’re like, “Hey, I was making $120,000 per year. And I got this offer to make $130,000 or $135,000.” But then when you actually dig into like what they are moving to in terms of like a new 401k or match or a bonus or the health insurances that are provided, the plans that are provided, you have to dig a little deeper because they potentially take a step back in a lot of ways that are not just tied to the paycheck. I think it’s important, again, to look at this in totality. But I think it’s also — especially when we talk about health insurance, this is most definitely a plan. And you want a plan in place for the purposes of health insurance. When we get into talking things about life insurance and disability, I kind of view that as more as a perk. So not necessarily a plan — and we’ll kind of talk about the difference there. So yeah, super important because what we talk about at YFP, our mission is to empower pharmacists to achieve financial freedom. When I kind of speak day-to-day with clients with their particular financial plan, we go a little bit more granular. Our job is to help grow and protect income, which is the lifeblood of the financial plan, grow and protect net worth, which is essentially what sticks while keeping your goals in mind. So a big part of this of what we’re talking about is the protection. And you know, if you have a health incident or a disability and things like that, we want to make sure that we’re properly protected so some type of catastrophic event doesn’t get in our way. And that’s kind of what this is really all about.

Tim Ulbrich: Yeah, and as you mentioned, Tim, we will focus more on the side of those that are post-accepting that position, they’re either recently employed with that company, trying to make that selection as a part of onboarding or probably for most of our listeners, going through the open enrollment season as they look out to the New Year. But Episode 166, when you and I talked about why negotiation is an important part of the financial plan, we did talk about some of these components as potential differentiators or at least things to consider as you’re evaluating an offer and how these are the things that you will start to see some significant variance, perhaps from one offer to the next and so why it’s important to look just beyond that salary. So Tim, whether someone is reviewing their benefits for the first time, again, after accepting a new position or probably for most of us, going through another round yet again of open enrollment, there’s lots of benefits that are connected to the financial plan that one needs to consider. And we’re going to talk about health, life, vision, dental to a lesser degree, and disability, and of course, retirement accounts and HSAs. So we’ve talked about each of these on the podcast at one point or another. But this is another example where we try to bring various parts of the financial plan, take a step back and look at some of these components in its entirety and how they can impact one another. So let’s start with health insurance. And again, I don’t want to spend as much time on dental and vision as I think in my experience, there’s not necessarily a whole lot of option here. And typically, the price tag is smaller, of course, than you’ll see on the medical side. So Tim, why does medical coverage pricing vary so much? And I’m sure that’s something we’ll talk about, the variance that’s there. And talk to us about some of the key pieces that our listeners should be thinking about as they’re evaluating the medical coverage.

Tim Baker: Yeah, so I think the big driver in why health insurances are different and differently priced across companies is the law states that there are really five things that account for when setting premiums. One is age, so there’s a stat that says premiums can be up to three times higher for older people versus younger. It could be location, so that could be a big thing. I know when we were introducing health insurance, we have employees that work all over the country. And every state has different rules and local rules, and cost of living can also account for this. One of the things, which is kind of interesting to me — and I understand why but things like tobacco use, so insurance can charge tobacco users up to 50% more, some other of those sin activities maybe not necessarily accounted for, individual versus family enrollment, so you can charge more obviously if it covers for a spouse or a dependent. And then probably the big thing is like the plan category.

Tim Ulbrich: Yeah.

Tim Baker: And I think you want to have I think choice. But you have different categories, and these are typically based on kind of your out-of-pockets versus what the insurance company is paying. And these range anywhere from the bronze, which are typically the high deductible health plans that are typically kept coupled with HSAs, silver, gold, platinum. So these are the different levels that you typically see. Not all companies are going to offer every level. They might offer one or two or even three, but typically, again, the bronze plans usually have lower monthly premiums and higher out-of-pocket costs where platinum are typically higher premiums with lower out-of-pocket. So the insurance for the platinum covers a lot more. But you’re paying more out of your paycheck. So those are typically why we see varying — and I think just with going on with healthcare is everything, it seems like it’s becoming more expensive. And there’s a lot of stats that this is one of the highest — you know, we talk about student loans and things like that. But healthcare is definitely up there with regard to, you know, the inflation of it year after year.

Tim Ulbrich: Yeah, point well taken, Tim, on that. I know many business owners feel that. In my experience on the academic side, a couple occasions I’ve been involved in helping our HR team evaluate medical benefits for our employers. And you just see some of the data about annual increase in healthcare costs. And I think employers are constantly trying to think of how do we offer a valuable benefit for our employees but also with an increase in costs, you know, how much can they shoulder versus they pass that on to the employees? And so I want to think through a scenario, Tim. If I’m somebody listening or perhaps a client of yours at YFP Planning, maybe I’m faced with lots of student loan debt, I’ve got competing priorities beyond the debt, I’m thinking about maybe getting in a home, I’ve got obviously other priorities that are tugging at my monthly income and at the end of day, there’s only so much to go around. So I think people get into open enrollment, especially on the healthcare side, and they see these bronze, silver, gold, platinum, and you start to ask the question of like, wow, there’s some significant differences potentially in premiums of what’s coming out of pocket per month as well as what could come out of pocket per month if there is coverage that’s utilized in the form of either deductibles, copay or coinsurance. And so I think there’s this constant question of like, what do I want to be paying out per month? And could I use those monies elsewhere versus how much do I want to play defense in the case that something would happen and not have to necessarily have a huge deductible that would come out of pocket? So how do we coach clients through that decision and that choice? And maybe better framed is kind of what questions are you asking or things that you’re getting them to think about?

Tim Baker: Yeah, so it’s definitely one of those things what you want to look at it comprehensively. We always talk about like the financial plan cannot be looked at in silos. So you can’t just look at the tax situation versus the investments versus insurance. You really have to look at the broad scope of things. And you know, that’s why I think having what we use as a client portal where we’re looking at everything at one time is so valuable. And most people, their finances are scattered between banking and investments and insurance, all that kind of stuff. So having that all tied in and having someone look at it objectively I think is important, to start. One of the things that I equate to is if I’m working with a healthy 30- to 35-year-old, for the most part, I’m asking questions about how often are you going to the doctor? Are there any pre-existing conditions? And again, we obviously build up a rapport to the point that we feel comfortable asking those questions. But the idea is we don’t want to have — we don’t want to pay for a Cadillac health insurance plan if we’re never going to drive it, you know? So the joke that I kind of make is for a lot of our clients that because they’re scared of the unknown, they might go and do a gold or a platinum plan, but it’s almost like my parents, who are older and kind of newer to a smartphone, it’s almost like giving them unlimited data. They’re just not going to use it, you know? And no offense, Mom and Dad, if you’re listening to this. But that’s the thing is like you want to match use. And it’s kind of like a cell phone plan. Some people, they’ll buy the Cadillac plan and not use it all, the data and the minutes, etc. So like the — I don’t know if minutes are even still a thing. But anyway, the point is is that we want to match the need with what we’re actually going to use. So those are some of the thing that we go through. And oftentimes, you can step down and maybe free up some more cash flow so there’s less coming out of your paycheck. But then, you know, we just want to make sure that we have things like an emergency fund that we can cover the deductible and obviously the maximum out-of-pocket costs for that year. The other thing that I think plays a part in this that we talk about is just — and it goes back to their life plan — is if I’m working with, again, a 30-year-old family and they’re thinking about having kids, is kind of timing that up. So it’s almost like an annual, like we talk about almost like an annual open enrollment optimization meeting where yes, if we’re looking at adding baby No. 2, maybe we don’t want a high deductible health plan with the HSA. Maybe we just put the HSA on ice, move up a plan or two so we have a little bit more coverage and we feel a little bit more comfortable, again, with those hospital bills and all the doctor appointments, etc. So those are the things that I think come into play. And we have clients that are like, yeah, I just, I go to the doctor a lot because I have this issue or this issue or it could pop up, and it’s almost like what we talk about the emergency fund, if you have a couple and one of them really wants $25,000 in the emergency fund although the calculation says we only $15,000 or $20,000, it’s not even worth the argument. Just pay the little bit of extra and have that comfort level. So those are all the things that I think at the very least, what we want to do here is — and I’m going to say it — we want to be intentional. We want to be asked those good questions and really do that on a year-to-year basis. So those are the things that we’re looking at when we’re kind of discussing the health stuff with clients.

Tim Ulbrich: Great stuff. And then let’s shift gears to talk about life and disability. And I want to first mention, we’re not going to obviously get in the weeds on all things life and disability insurance. Both can be a topic of their own, and they were a topic of their own, Episode 044, How to Determine Your Life Insurance Needs, Episode 045, How to Determine Your Disability Insurance Needs. We also have a lot more information on the website, YourFinancialPharmacist.com. But Tim, one of the most common questions I know that I get, I’m sure that you get, is do I need to purchase additional life and disability insurance beyond what my employer covers? So we’re getting into this what do I need and is what my employer provides enough? Or do I need additional coverage? So again, through the lens of how you’re coaching a client through this, how do you coach them through it? Are there questions that you ask to help uncover this answer?

Tim Baker: Yeah, so it’s going to be my stock answer of it depends. So if we look at life insurance from that perspective, actually life and disability I’ll say kind of the blanket statement that I kind of led the episode with is this is where we kind of venture from it being a plan to a perk. Just like we’ve seen with pensions and some other things, like it could be that in five, 10, 15 years, that these types of benefits are no longer offered by the employer. It’s just one of those things that it’s a suck on the cash flow of the employer and they go away. And this is me speculating, but when we look at life in particular, typically what I say to clients is sometimes it angers or annoys me when I see a client that is 28 that has no kids, no spouse, really just student loans and they’re paying premiums on a permanent whole life insurance outside of what the employer provides. So the caveat, you know, what I typically say to clients is when you have a — for life insurance, when you have a house, a spouse, and mouths to feed, that’s typically where you need some life insurance. So there’s other people that are dependent on you and your income. Now when it comes to the group policies, most of these are actually provided to you for free. It’s just one of the benefits. And it’s typically kind of the more on the not-so-great is like a flat $50,000 benefit that your beneficiary would receive. Or it’s typically a multiple of income. So it’s typically 1 or I just met with a client that had a 2.5x base, 2.5 times their base income was their benefit, which is pretty good. So if I make $100,000, I either get 1x or 2.5x, it just depends. And then you also have the ability to buy up voluntarily. So to me, you know, the problems with group policies is that there’s limits on actually how much you can get. Most of the individuals that we work with, they check off those boxes that they’re going to need $1 million+ in insurance at least. So there’s limits on the group policies. There’s portability. So if you just a group policy and you work with that company until you’re 42, and now you go and work with another company at 42 that doesn’t offer health insurance, I would rather you have bought that policy at 32 or 35. Now you have to go out and buy another policy yourself individually, it’s going to be that much more expensive. And the thing in life insurance is that typically, to buy it on your own, it’s not going to break the bank for most people. So the group policy for life insurance, it’s nice, it’s a perk, but not necessarily — most people are going to need to buy something outside of that. For disability, the same is true if not even more so. So typically, this is based on a percent of your income, so a 50-60% benefit. The biggest issue I have with group disability policies is that the definition of disability, which is sometimes really hard to find out what that is. So if you go back to that episode we talk about own occupation versus any occupation. So the big difference — so own occupation is the inability to work or engage in your own occupation versus any occupation, which is the inability to engage in any occupation. So the big thing I say to clients is if you have an any occupation — Tim, if you have an any occupation disability policy, and you get bumped on the head and you cognitively no longer can do your job, and you submit a claim, they’re going to say, “Well, Tim, we’re sorry about your situation, but we’re denying your claim because you can still bag groceries,” or something like that. So a lot of these group policies will be own occupation for a set period of time, maybe two years or three years. And then they switch to a any occupation. And to me, it’s kind of like a wolf in sheep’s clothing because you’re thinking like, oh, I have this long-term disability policy that’s going to cover me for a long time. And to me, I would almost rather them give you some type of stipend to go out and buy your own. So those are typically the conversations that we have with clients, for most of the clients that we work with, if not all, there is no spouse, mouths, house to feed kind of check box. Typically, if you are a pharmacist, you want to protect the income that you have worked so hard to basically earn. So for most people that we work with, that is definitely something that is often the biggest risk that is not necessarily felt by that particular client. Those are the things that we have to kind of like educate and talk through. So — and so much with the life — to kind of wrap up this answer, so much with life and disability is that you always think it’s going to happen to somebody else until it happens to you. And then that’s where we go down the path of like, this is a catastrophic event. How do we pick up the pieces from here? And those are just not conversations that we want to have.

Tim Ulbrich: Yeah, great stuff. And again, Episode 044, How to Determine Life Insurance Needs, Episode 045, How to Determine Disability Insurance Needs, we talk about some of those definitions in more detail, tax considerations, transferability issues, how to calculate your need. Tim, ironic you use the example of bagging groceries. So my very first job outside of working for the Ulbrich family business was bagging groceries at Top’s Supermarket, shoutout in Buffalo, New York. I loved it. One of my favorite jobs. And to this day, when I go grocery shopping, I have a hard time watching them bag groceries because I know, I know I can do it more efficiently. So one of my favorite work experiences. Alright, so let’s talk retirement. And again, a topic we have talked about at length on the podcast, long-term savings. We did an investing series, episodes 072-076, all about investment vehicles, retirement vehicles, tax consideration, fees. And most recently on Episode 163, we talked about investing beyond the 401k/403b. So Tim, my thought here is spending a few moments as people are going into just evaluating their benefits as a whole, we obviously know depending on where they work, they might be looking at a 401k, a 403b, a TSP, a Roth version of that. But taking a step back to say, before they just jump in, what are some general considerations that they should be thinking as it relates to those options available, options available outside of the employer? And again, how this fits in with the rest of the financial plan.

Tim Baker: So this can be fairly significant with regard to your financial plan. Like we work with clients that, you know, the 401k is stellar. And I actually had one of these meetings last night. The 401k for the wife was stellar, and good match, costs associated with the 401k were very minimal, good choice in terms of the investments that were there, versus the husband that his 401k was something like 30x more expensive. And the match was similar, but it was more — it kind of became more discretionary, meaning they would kind of evaluate it from year to year. Again, not a great investment selection, so these are the things — and I would say that this is really, really hard to kind of discern for yourself. So we have tools that we use that are very helpful, very expensive but very helpful to kind of help us crack the nut on the 401k. So it allows us to really kind of connect to these types of plans and evaluate them for the client and actually say — and the discussion that I had last night with a client was like, I said, “Look, you’re putting in 8% into your 401k, and they’re matching 4%. But the money that goes inside of that 401k is just being eroded at a rate that’s like 30x more if we put it into an IRA.” And that’s associated with the costs there. So what a client — and it’s easier to talk about this with round numbers, but if the client had $100,000 in their 401k, every year that 401k was basically charging that client like $1,200 versus his wife, which was like $20. So if you extrapolate that over 20-30 years, those are real dollars. And the problem with this is unless you can dig into the IRS forms that the plans file every year, it’s really hard to figure out what you’re actually paying. And that’s, to me, it’s a really big problem. So just like the health insurance kind of question, you’re kind of operating in the sandbox that they provide you with the 401k. So you’re going to be provided sometimes multiple options, it could be a 401k, a 403b, a 401a, you know, there’s different flavors. But you typically have, again, a set amount of investments inside of that, 20-30 funds that you are selecting from. And I would say it’s more important I think to have lower cost options within that versus a variety of — you know, one of the most efficient retirement plans out there is the TSP. And they have like six funds plus some target date funds. So it’s not a whole lot of choice. But the costs there are super low. So those are the things, as you are evaluating your employer’s plan, you have to kind of say, you know — and the discussions that we have is kind of what I was saying with the client that I recently met with is does it make sense to again get the match, get the free money, but then look outside to other accounts, whether it’s an IRA, even a taxable account, if there’s a side business maybe there’s a SEP IRA option or something like that, again, this is a little bit harder just because the information that you’re looking for is often buried in an IRS form. But it’s really, really important because if you look at the scenario that I brought up, that’s potentially hundreds of thousands of dollars, and that’s not an exaggeration if you extrapolate that over a career. So that’s really important. And for a lot of us, the 401k is going to be the biggest asset that we manage. And it’s important to get that right. So just a lot of moving pieces.

Tim Ulbrich: And I think, Tim, this is easy — I’m just speaking from personal experience — easy to kind of put this on autopilot of eh, it is what it is, it’s what I have. And I think really spending the time to dig in and understand not only the basic things like what are they matching? But also the investment options or choices, and you start to get into asset allocation, understanding fees. And some of that’s transparent, some of it’s not, so seeking help where you need to have help. We’re really investing the time because every year that goes by where there’s something like fees that are being taken out of what could turn into longer-term compounded returns, obviously there’s an exponential factor in that. So it’s worth spending the time. And that’s my challenge to the audience going into this year to really dig in deep here if you haven’t yet. Tim, I’m thinking of a small but important group of our audience, specifically probably some of our friends in the pharmaceutical industry space that may have some stock options available to them. I know we get this question often when we’re speaking with fellows — and a shoutout to MCPhS, a fellowship program. We’re actually going to be talking with them next week. And so that’s what had me thinking about this. You know, of course we know these options can vary from employer — one employer to another in terms of not only what they offer but of course the individual company and the outlook on that company, so there’s no black and white answer here. But what are some general considerations around stock options that folks should be thinking about?

Tim Baker: Typically, the big distinction that we want to make here is it’s not necessarily stock options that we’re dealing with. Typically, stock options is where you can buy a stock at a much discounted price sometime in the future then potentially sell it for what it actually selling for on the market. And there’s a variety of ways to kind of look at that and do that. Typically, what we see in higher levels of management, community pharmacy in kind of the big chains or in industry is RSUs, Restricted Stock Units. And this is not to be confused with employee stock purchase programs, which is kind of a savings account that you defer money into and then at the end of the quarter, you buy stock at a discounted price. It’s kind of almost like another way to save. So what an RSU is, what we’re talking about here, is think of it as compensation that is in the form of stock. So if I’m trying to hire you, Tim, to my pharmaceutical company, I might say, “Hey, Tim, I’ll pay you $130,000 and then we’ll award you $10,000 of stock over the next five years,” that’ll have some type of vesting period. So let’s pretend that we — after Year 1, we give you 100 shares. And then you know, that vest — and then what that means is that you have to work for a set amount of time for that to actually become yours. It’s in your account, but if you leave, it’s not necessarily there. The next year, maybe now have 200 shares and maybe that first 100 has vested. So if you leave, you can cash out that first 100. So it’s a creative way to provide compensation outside of what’s in your paycheck. So a lot of the considerations that we have to look here is again, what is the vesting period? They’re kind of golden handcuffs. What are the tax consequences? So when to basically sell them and if you have to pay capital gains tax and what that looks like. So those are all kind of things that we want to coordinate with not just the portfolio and the allocation that you have but also the tax ramifications that are there as well. So the RSUs are a beautiful thing, and we’ve been working with clients that get awarded, and it’s great to have that money there. But it’s also how does this plug into the greater financial plan and how can we do it in the most efficient way possible from an allocation but then also from a tax perspective.

Tim Ulbrich: And as we wrap up this section on retirement options and savings, employer-sponsored retirement, for those that are listening that perhaps your employer doesn’t offer one — I’m thinking about some of our independent pharmacy folks or you look at your option and say, “Wow, these are crazy. Is there a better way forward?” We’d love to talk with you about that. I mean, I think that’s an area that we’re interested in seeing an opportunity to help. So you can shoot us an email, [email protected], and we can set up a time to discuss that further. So Tim, last piece here before we talk a little bit about the open enrollment logistics and some considerations for the actual process itself. I want to spend a couple moments on FSAs, HSAs. I think these are often confused. I know we’ve talked about this on the show before, but it couldn’t hurt as a reminder as some folks may have an HSA available, some may not. Some may have an FSA and don’t want them to confuse that with what an HSA is. So talk to us about an FSA/HSA difference and considerations as they’re evaluating these options.

Tim Baker: Yeah, so I think the big difference between the FSA and the HSA is FSA I think — or FSA is a pass-through account, meaning it doesn’t accumulate over many, many years. So you essentially set up an FSA, which could be for healthcare, it could be for dependent care, through your employer. And it’s an arrangement that lets you pay for many out-of-pocket medical expenses or childcare expenses with tax-free dollars. So it’s allowed — from the medical side, it’s allowed for things like copayments and deductibles, prescription drugs, medical devices, etc. On the dependent care, it’s things like daycare costs, camps, etc. So with the FSA, if the money is left at the end of the year, the employer can typically do one of two things, not both. They typically can either give you another couple months, like typically 2.5 months to spend the leftover money. So let’s pretend I have $1,000 in my FSA at the end of 2020, I’m given until mid-February to spend that money. Or what they can do is they can let you carry over up to $500 into the next plan year. So if I have $1,000, I have to spend $500, and then I can carry over the other $500 into 2021. Anything above and beyond that is lost, which is why I just don’t like these types of plans. I mean, they’re good to shelter you from tax, but you’re kind of like — you’re kind of trying to guess some of the things that are maybe not as predictable as we might think. So it’s one of those things that we would fund with things that we know we’re going to have to pay. So if we know we’re having daycare that costs us x amount of dollars, we know we want to fund it at least for that. Or if we know that we’re going to have these particular costs for health, we want to fund it with at least that. So that is the FSA. The HSA, on the other hand, is an accumulation account — or it can be. It can also be a pass-through account. So the HSA is the only account that has a triple tax benefit, which means it goes in pre-tax, it grows tax-free and then if it’s used for qualifying medical expenses, it comes out tax-free. So it completely misses the tax man at every step. So the big difference, though, is that I could put $2,000 into it this year, as an example, and not spend it. And then next year, I could put another $2,500 and not spend it and actually invest it. You know, invest it almost like an IRA — similar to an IRA — and basically use it as an accumulation account. So a lot of people use it as a stealth IRA. And this is what we do is that we try to cash flow our medical expenses and just leave the HSA alone. And the idea is that it’s just another bucket of money that we’re funding that can be used for retirement sometime in the future or it could be used for hey, in 2022, we had a health thing that pops up that we really need to pull that money from. So there’s a lot of flexibility and power in the HSA. With the HSA, you have to have a high deductible health plan. So if you have one of those gold health plans, you’re not going to be able to fund an HSA. The deductible won’t be in line. So those are the big differences between the FSA and the HSA.

Tim Ulbrich: And we talked, Episode 165, Tim Church and I talked about the power of the Health Savings Account. Make sure to check that out. We talked in more detail about what you had summarized there, talked about some of the contribution limits, the definitions of high deductible health plan and got in a little bit as well of the differences between that and an FSA. And I couldn’t agree more, Tim. I think for people that have access to an HSA, if they can leverage the benefits that you suggested, great. Many people may not have access to one and so really looking at the FSA as is that an option for saving for planned expenses you know that are going to be coming up in the following calendar year? So we’ve talked about a lot, Tim. We talked about health insurance, life and disability, retirement, as well as the FSA/HSAs, and I want to wrap up by summarizing the open enrollment process. What exactly is it? And then what are some considerations for our listeners as they head into this season of open enrollment?

Tim Baker: Yeah, so open enrollment is typically a time, it’s a time period that every employer has. It’s usually held annually. A lot of them have them this time of year. Sometimes they’re in the summertime, sometimes in spring. But for the most part, we see them in kind of the September-October-November time period. So it’s a time for the employee to basically select their benefits or their health plan or whatever for the next year. So you know, the open enrollment period sometimes can be glossed over and they’ll just say, “Hey, well, I’m just going to kind of keep the status quo.” The problem with that is that oftentimes these plans are changing, you know, every year they’re changing with costs and everything kind of moving. But I think the way that we approach it with clients is one, to be a — kind of to be a sounding board for them. And we often, what we’ll do is we’ll log onto the benefits portal with a client, and we’ll just kind of go — we’ll review the packet that maybe they’ve sent out to us and we’ll read through it and we’ll kind of just provide comments and ask questions. And then sometimes we’ll actually log on and actually go through their open enrollment and say, “Hey, let’s opt into this. Let’s opt out of that, we don’t need to be paying for that, etc.” So the thing that I would say for listeners is to really take a look at what your employer is providing. And if you have questions, this is another thing that we do — because sometimes it’s not apparently clear what the benefit is or what it covers, etc. is put your HR people to work. I often ask the question — and I actually have this conversation. I’ll say like, “Is your HR person any good?” And they’re like, “No, not really.” So we can formulate good questions and then basically if we can take them all the way to finish line in terms of what they need, great. But if sometimes we have to go back to the HR person and say — and have the client or the employee say, “OK, like can you explain this a little bit more about –” we just had one that’s about the definition of disability and what that looks like. And this particular client, their company was going through a merge, so there was a little bit of kind of just unsure about what it’s going to look like going forward. But to me, this all goes back to the I word, which is be intentional, review your stuff, kind of take stock of where you’re at in your life, what you think you need, what you don’t need. I would say one of the things that I often see is that this is one of the things that is overlooked in the financial plan. And it’s kind of a microcosm of insurance. It’s like, ah, I don’t need insurance, or ah, it won’t happen to me and ah, I don’t want to take the time to read through it. And I get it. I mean, some of these packets that we get are 100 pages long. It’s 100-page PDF. And we can basically go through it fairly quickly and kind of pull out, extrapolate the information that is most important, provide good, sound recommendations. But it is one of those things that is important and you know, you want to — to me, it’s about optimization and making sure you’re using best use of everything that is kind of available to you, whether it’s, again, salary, insurance, etc. So those are the things that I think should be top of mind for someone as they kind of go through this period of open enrollment.

Tim Ulbrich: Yeah, that’s a great recommendation. It reminds me a little bit of the advice that we give to recent graduates of hey, don’t wait until the grace period’s up to make your decision and do your homework. So now is the time to really be understanding some of these nuances, the options that are available, looking at it in the context of the rest of your financial plan, reaching out, getting some help, so that once you get to that open enrollment period and you have that meeting or that webinar and you get that packet of information, you’re ready to hit the ground running with evaluating that further and making those decisions.

Tim Baker: The HR person should be able to like contact the insurance or even like the 401k, like I’ve come back with clients and I’ll say to the 401 provider, “Why are these fees the way they are when there are options that are much, much cheaper?” So you know, you — I mean, the HR person might not be able to answer the question directly. You know, sometimes it’s like, well, I don’t know that. But then to me it’s push the issue. And it’s like, well OK, can we talk to the people that do know these questions, whether it’s an insurance question or a 401k question, etc. So to me, it’s like don’t be shy about this. This is important. It’s a crucial part of your financial plan and your livelihood. So to me, those are questions that we want answers to. So I would just say, kind of squeaky wheel gets the oil type of thing and make sure that you’re putting the professionals that get paid to provide these services, put them to work and make sure that you’re satisfied with the outcome.

Tim Ulbrich: Yeah, especially for those listening that feel like they have some cruddy options available because those are the individuals that are often making the decisions, they’re getting in front of the reps that are providing them with the options, so you know, there might be an opportunity to do some direct or indirect education on oh my gosh, I had no idea about the fees or what other options may be out there. Because at the end of the day, you know, to defend some of these HR folks, many of them are busy with a lot of things and sometimes it’s easy to renew a package rather than really taking the time to evaluate what else may be out there and be of benefit to the employees. So Tim, great stuff, as always. And to the YFP community, we appreciate you taking time to join us on this week’s episode of the Your Financial Pharmacist podcast. If you liked what you heard on this week’s episode, please do us a favor and leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And if you are not yet a part of the Your Financial Pharmacist Facebook group, I hope you will join us. Over 6,000 pharmacy professionals strong, helping one another and committed to helping one another on their path towards achieving financial freedom. Have a great rest of your week.

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YFP 173: Using Systems to Automate Real Estate Investing

Posted on by yfpadmin


Using Systems to Automate Real Estate Investing

Ryan Chaw, pharmacist and real estate investor, joins Tim Ulbrich to talk about how he built a six-figure rental portfolio, red flags to look out for as an investor, and the method he uses to find good tenants.

About Today’s Guest

Ryan graduated with his Doctor of Pharmacy in 2015 at age 23

He was inspired by his grandpa who bought 3 properties in the Bay and achieved financial independence for himself and was able to help cover college tuition for his grandchildren.

Ryan bought his first property in 2016. It was a single family home at his local college. He rented out the house per bedroom and renovated to add extra bedrooms to increase rental profit.

He repeated the same process for each property, buying 1 property each year. He then created a system for getting consistent high quality tenants, managing the tenants, and decreasing expenses through preventative maintenance. He now makes $10,755 per month in rental income.

Three of the properties are on 15 year mortgages and one is on a 10 year mortgage. Ryan took a HELOC out on the first house to help buy the 4th house. He paid off his first property in 2020.

Ryan is now teaching others his system: how to find a college town to invest near, analyzing a deal, generating tenant leads through strong marketing, and how to self-manage college tenants so everything is hands off and automated.

In his free time Ryan travels to many foreign countries to just absorb the culture and life outside of California. So far he has been to China, Japan, Taiwan, the Bahamas, Canada, Paris, London, Germany, and Mexico.

Summary

Ryan Chaw joins Tim Ulbrich to talk about his why and motivation behind real estate investing, how he built his portfolio so quickly, how he balances a full-time pharmacist career with real estate investing, red flags to watch out for when purchasing a rental property and Ryan’s unique method for finding high quality tenants.

Since graduating pharmacy school in 2015, Ryan has purchased four single family homes with 18 tenants and brings in $10,755 a month. Although he hasn’t been able to purchase a property this year, Ryan paid off his first property in full which brings in about $2,500 in rental income monthly. He also now has a large HELOC that he can access to fund a future deal if needed.

Ryan shares that despite being a full-time pharmacist and real estate investor, he does in fact have a work/life balance. Ryan set up systems and standard protocols in place so that he can run things on autopilot. He has systems created for maintenance issues and advertising which allows him to only have to spend an hour a week on his properties. Because of these systems he doesn’t feel the need to hire a property management company which would cut into his cash flow.

Ryan shares several red flags to watch out for when purchasing real estate like: water stains, mold, dry rot, strange odors, uneven flooring and if the property is being sold as is. He also explains his process for finding high quality tenants which he refers to as his PRIME method which stands for:

P – placement of advertisements

R – review of social media

I – identifying type of tenant

M – measuring responsiveness

E – ensuring proof of income

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Ryan, thank you so much for coming back on the show. How are things going?

Ryan Chaw: Things are good. I’m excited to be on the show again.

Tim Ulbrich: Happy to have you back. Appreciate you reaching out to give me an update on kind of where you’re at, and we’re going to talk all about your portfolio, what you’re working on on the real estate side, how in the world do you manage that given your competing responsibilities also as a pharmacist. And you know, I’ve been wondering, Ryan, so last time we talked, you had mentioned your love for international travel. So here we are, obviously in the midst of a global pandemic, travel hasn’t been what it was. So how are you spending your time and really finding that release from work without travel as an option?

Ryan Chaw: That’s a great question. Yeah, I’ve been going on a lot of hikes nowadays, kind of just get clarity and work on my mindset and see where I want to go with my real estate business and everything. So yeah, I’ve been doing that. Also just spending time with friends, either outdoor dining or sometimes just online, we play this game that’s kind of like Mafia, it’s called Among Us. But yeah, it just kind of is chilling.

Tim Ulbrich: Awesome. And I’m glad you mentioned mindset because I have found also, you know, I think 2020 is going to be a year for many of us that we look back in five or 10 years, and there’s a lot of reflection going on. I know for me in 2020, I think just the midst of everything that’s going on, perhaps more time, less activities, whatever be the reason, but a great time to develop, to set mindset, to reflect on where things have been, to reset if you need to reset, and to look ahead into the future. And so today, we continue our focus for the YFP community, as we mentioned, in 2020, we want to bring you more real estate investing content. And so again, Ryan, we had you on the show, Episode 140. We talked all about how you’re bringing in almost $11,000 a month through college town real estate investing, such an awesome conversation, great story. I personally think it was really inspirational to a lot of people that are itching to get into real estate investing while still working full-time as a pharmacist but maybe aren’t quite sure as to where to start. And so I hope folks will go back and take a listen to that episode, Episode 140, if they haven’t yet done so. And we’ll link to that in the show notes. And so Ryan, I want to chat with you about a few different aspects of your real estate investing journey, including your strategy behind building the portfolio that you’ve built, especially in an expensive market, some red flags that ended up costing you quite a bit of money on your first deal — and we’ll break that down — as well as your unique prime method that you use to find great tenants at your properties, which as we know obviously can be the difference in terms of not only headaches but also in terms of cash flow. So let’s hit the stage and talk about your portfolio and recap some of your journey for perhaps those that didn’t join us on Episode 140. Take us back. Remind us when you got into real estate, why you got into real estate, and what your current portfolio is made up of.

Ryan Chaw: Yeah, sure. Let’s start with why I got into real estate because it really was an inspirational journey for me. I got started from my grandpa, actually. He bought a couple properties back in the ‘50s before Silicon Valley was even a thing. And as we know, all those properties went up in price like crazy, and he became a multimillionaire and was able to retire early. Not only that, he was able to cover part of my college tuition and that of my brother’s. So it really showed me that real estate is one of the best ways to create generational wealth, not just for yourself but for your children and future generations as well. Unfortunately, I wasn’t able to ask him how he did it before he passed away, but you know, I wanted to get started as soon as possible. So I got my pharmacy degree in 2015, I graduated as a RPH or PharmD, and I just wanted to get started as soon as possible. So I worked a lot of long hours. I actually had two jobs. I worked as a retail pharmacist and as a hospital pharmacist and really grinded it out because I had this dream and vision for myself, right? So I wanted to get started in real estate as soon as possible because I knew that the prices will go up over time, rent will go up, all of that. And so real estate’s really a time game, and you’ve got to get started as soon as possible. So I bought my first house in 2016. It was a $262,000, three-bed, two-bath house. And I bought it in my local college town because I figured if I rent out per bedroom, I could get a lot more rental income than if I rented out the whole house to like a family or something like that. And so I bought one house every year by reinvesting the cashflow, investing my W2 income, and I actually took out something called a HELOC, which we can talk about later, it’s called a Home Equity Line of Credit. Because my first house went up in price by about $60,000, I was able to access the equity, take it out, and put it onto my fourth property. So now I have four single-family homes with 18 tenants that makes $10,755 per month at max capacity.

Tim Ulbrich: I love it. Thanks for the recap. I mean, I love the energy in your voice, kind of the why. We talked about that on Episode 140, what’s the why, what’s the purpose beyond making money, but what’s the vision as it relates to your financial plan? I love the focus on a desire for generational wealth. And you know, while you weren’t able to ask your grandpa what the playbook was, you know, here we are, recording this, right? So this is going to be available not only to others in the community but as I’m sure you’re already thinking, how you can pass this down in information to your kids and their kids and how important that is to be able to teach others the principles that we learn along the way. And so Ryan, in 2020, here we are. I know you had mentioned a goal of acquiring one property each year, but this year has been different — let’s be kind and say it was different, right? It’s been a challenging year, we’ve got a global pandemic, you live in an expensive market, so I’m guessing your plans and visions for 2020 may not have panned out exactly as you had thought they would before especially the pandemic hit. So tell us a little bit more about what has happened in 2020 as it relates to your portfolio?

Ryan Chaw: Yeah, definitely. So coronavirus hit and unfortunately, the college that I invest near did shut down and went to online classes only. There are a few classes that are still on campus, and so I was kind of like worried. Like am I still going to get tenants, right? So I contacted my existing tenants and asked them all, you know, ‘Do you guys want to extend your lease? Do you still want to stay or not? Because you guys have the option to cancel your lease because I can’t — obviously this was unprecedented, we didn’t expect this. So I’m giving you the option to cancel.’ So you know, just kind of working with the current tenants and saying, ‘Hey, I can go around your budget as well if there’s budgeting concerns.’ I basically made that connection with them, and that’s how I was able to actually keep a lot of the current tenants. And not only that, when I advertised, I advertised in Facebook groups, and I offer them to give me a call so I can talk to them to see if this is a good fit for them, right? So I would basically on the call go through any of the concerns about the house. A lot of the concerns are like security, is this a good neighborhood, what are the other tenants like, and all of that. But because I took that extra step to get on a call with them, I was able to basically fill up almost all of my bedrooms during this year. So I have 17 bedrooms, and I filled 15 of them so far.

Tim Ulbrich: That’s awesome. And I think that speaks to your focus on relationships, not only finding good tenants but also maintaining those relationships. And before we hit record, you also mentioned this year, you were able to pay off one of your properties in full, correct? Tell us more about that.

Ryan Chaw: Yeah, I was actually able to pay off the first property. It’s kind of like for peace of mind, honestly. There’s definitely this debate between should I just leverage my money to the max and basically just buy as much property as I can with the money I have? Or should I pay off some of them so I don’t have to worry about not being able to pay the mortgage? If there’s a huge recession or something like, I’m not underwater. So for me, I kind of wanted a little bit of peace of mind, so I paid off my first property. And it doesn’t mean I can’t touch that money. I can still access it through my HELOC, right, my Home Equity Line of Credit. But it does give me that peace of mind and that extra cash flow. The first property was making around $2,500 per month in rental income, so I have that $2,500 per month in just passive income basically, minus some expenses, obviously. But yeah. I mean, that kind of was one of my goals is to pay them off, right? So I was definitely happy for that.

Tim Ulbrich: Congratulations. And you know, $2,500 a month of rental income, no mortgage payment, that’s a great position. And I think I appreciate your comment about, you know, even though you paid that off doesn’t mean you don’t have access to the equity if you wanted to tap into that. But obviously you’re weathering a little bit of an unprecedented situation here I’m sure and will be on the offensive going into the future. So tell us more about the financing of those four properties. Did you approach the financing the same in all of those? And tell us about how you were able — you mentioned the HELOC, but in terms of the mortgage structures, and I think that will help give folks an understanding of what options may be available to them.

Ryan Chaw: Yeah, definitely, especially with pharmacists having such a high salary, a lot of them making a good six-figure income or a little bit less than that, we have options to purchase these houses, we have that opportunity that a lot of people may or may not have, right? Especially as an employee, you actually get pretty good financing options. What I did is a conventional mortgage through Fannie Mae/Freddie Mac, those are just two government-sponsored enterprises out there that basically set the rules for how the loan can be done or what loans are given out, right? And so I just did the conventional financing and was able to reinvest my cash flow every time to purchase a property sooner and sooner each year.

Tim Ulbrich: OK. And if I recall from our conversation before, majority of those you had on a 15-year mortgage, maybe one that was shorter than that. Obviously you’ve paid one off since then. But is that correct?

Ryan Chaw: Yeah. They’re all on 15-year mortgages. I kind of that, again, with the peace of mind idea, I want to pay them off as soon as I can. If I were to pay them all off, it would take me until I had around 31, and then I would have that six-figure, that $10,755 per month just coming in in passive income. And so then at that point, I could retire, basically live life on my own terms, be able to do what I want where I want with whomever I want to do it with and have that choice whether I want to go on to work or not.

Tim Ulbrich: Yeah, financial independence by definition, right, right there. So tell me more, tell our listeners more — you know, I’m guessing some folks are thinking, my gosh, rates are at the lowest we’ve seen in who knows how long, it probably doesn’t get any better than they’re at right now. And so as you were kind of reconciling paying these off early — and you’ve alluded to this a little bit with peace of mind versus it’s a low interest rate debt, I can free up some monthly cash flow, whether that be for purchasing properties, maybe contributing into other retirement funds or other investments or ventures. How have you reconciled this balance between peace of mind/aggressive repayment versus you know what, it’s pretty cheap debt and I might be able to do something else with that money?

Ryan Chaw: Yeah, definitely. I mean, I’ve definitely been looking at the current market. And it’s kind of like as Bruce Lee says, you have to be like water. You want to definitely have a plan but be flexible with your plan, right? Water takes the form of the container it’s in, which means like you have to be able to pivot. Like if there’s a — maybe let’s say the housing market crashes, right? All of these houses are on sale. Well then you do want to start leveraging your money. You do want to buy as many properties as possible. So that’s why I have that HELOC. You want to be in that position where you can go either way. So right now, the market’s very hot. Houses are actually being bought in cash for over asking price. So I’ve been definitely having trouble finding a house to purchase this year. But I’m definitely always looking, and if I can find a good deal and an opportunity add where I can add extra bedrooms like turn a three-bed to a five-bed house, then I will jump on it right away. So yeah, I guess that’s my best advice, just what Bruce Lee said, be like water.

Tim Ulbrich: I love that. I mean, be flexible, be nimble, and put yourself in a position, right, so when the time is right — it doesn’t mean you’re always on the offensive, but you’ve got yourself in a position, whether that’s cash, whether that’s a HELOC that you have ability to access some equity, but you’re in a position, ready to go, when that time does make sense and obviously when that deal presents itself. So Ryan, you’ve built a six-figure rental portfolio in a matter of four years. I want our listeners to remember you’re a 2015 PharmD grad, bought your first property in 2016, which is really impressive in and of itself, but you’re also working full-time as a pharmacist. And so the obvious question here is, how are you doing that? What’s the work-life balance like? Or is there even one?

Ryan Chaw: Yeah, that’s a great question. So there’s definitely a work-life balance. So the thing is, if you have systems in place to go to protocols, standard protocols in place for when something goes wrong, then you can automate everything and be able to do this while you’re working as a full-time pharmacist because I did it, right? I have four properties. I have 18 tenants. And I’m able to do this on the side simply because I have these systems in place for when something goes wrong. So for a quick example, let’s just say a toilet broke down, right, or there’s a toilet leak. So I teach my tenants, I empower my tenants and give them responsibilities, if this happens then you should call this number, bill it to this contractor. So I kind of have like a list of numbers of contractors that they can go to for that. Or if they were to like text message me, I would just forward that text message to the proper contractor because I have this contractor team that takes care of issues for me. And I know what the strengths and weaknesses of each contractor, so I know where to put whom.

Tim Ulbrich: And so when it comes to that contractor team, you know, I’m wondering as somebody who’s at the very beginning of this journey, how do you build that contractor team that you trust, right? So I’ve talked to several folks who are like, I’ve got this contractor, I trust him, I know that it’s good work, it’s a fair price. But you know, as somebody who’s new into this space, you’re like, I don’t know. I might Google search, I might ask some people on Bigger Pockets or whatever, so how did you build that team? Was it through experience? Was it through referrals? Tell us more about that.

Ryan Chaw: No, real estate’s all about connections. And going back to what we were talking about earlier where I connected with the tenant on the phone, right, and really give that human touch, it’s really all about connections. So what I did is I actually talked to my neighbors, and my neighbor’s friend was actually a contractor in the area, and he did a lot of projects. So I just had him kind of, just tested him out, had him do some smaller projects, and then eventually some larger projects. He did a great job, and you know, he charged a fair price and all of that. Right? But if you’re kind of just starting out, I would say just talk to your real estate agent. Your real estate agent will likely know some contractors in the area. Talk to your neighbors, talk to people around the area, build those connections. Also when you talk to contractors, make sure you talk to — if it’s a major project especially — talk to at least three. Get like — they’re called bids. Get three bids, and choose the one that seems to know what they’re doing, is able to explain what they’re going to do, and is a good price point. So the point of getting the three bids is so you can compare. Also, you can ask for something called an itemized bid, and this is just like another tip. An itemized bid is where they separate out the cost of materials and the cost of labor. And so the cost of labor shouldn’t be too much, like it shouldn’t be over $100 per hour most times. And then the cost of the materials, you can just look that up on Google or you can even pay for the materials yourself, ship them over to the contractor and have them give you a bid for labor.

Tim Ulbrich: Great advice and input. And one of the other things I was wondering that I suspect our listeners are as well, you mentioned that when an issue comes up with a tenant, you’ve kind of educated them or given them information on where to go, ideally take yourself out of it, but if they reach out to you, you can then just work with that one contractor, forward their information. So does that remove the need for working with a property management company? Or is that in addition to working with a property management company?

Ryan Chaw: To me, it actually removes the need for a property management company. I feel like I do like even a better job than most property management companies out there because I have these systems in place. If you do want to hire a property management company, they can take anywhere from like 8-12% of your rental income, right? And that, to me, wasn’t necessary because I have systems in place for advertising my properties, vetting and finding high quality tenants, I have systems for if issues come up, if tenants complain about other tenants, right? And because I have all that in place right now, that’s all automated, I really don’t have to do much work other than just keeping track of the finances.

Tim Ulbrich: That’s great. That’s awesome. I think the investment you’ve made there, I can tell it’s something you have a strength in, you know? And for some folks, they may build that system, others may factor in the property management into their deal analysis but making sure you’re accounting for that piece of it is really important. So you’ve got these four units, obviously you sat tight here in 2020. What are your future plans? Do you plan to continue with single-family homes where you’re renting out the rooms, this model that you’ve been doing? Or are you looking to branch out into other property types?

Ryan Chaw: Yeah, that kind of goes back to the being flexible part, right?

Tim Ulbrich: Yeah, yeah.

Ryan Chaw: I would say first, I will diversify, definitely invest in different college towns, not just my own. Maybe go to 7-10 houses, somewhere around there would be kind of like my end portfolio. You really don’t need that much to achieve financial freedom, honestly. And like I said, I’m able to do it by the time I’m 31 or so. And I started this when I was 24. So that’s like 7-8 years or so. Any pharmacist could really achieve financial freedom, especially if they use these strategies of renting out per bedroom because you’re basically doubling your cash flow on the property.

Tim Ulbrich: That’s great. So let’s talk about your first deal. And you know, one of the things I mentioned — and I feel like we probably don’t even do enough of — is that real estate investing isn’t always rainbows and butterflies, right? Sometimes you walk into a bad deal, issues come up with tenants, you’re faced with a major maintenance, unforeseen rehab costs, I mean, really, the list can go on. So talk to us about the red flags that cost you big on your first real estate deal and how you learned from that and what you’ve then applied to future investment properties that you’ve evaluated.

Ryan Chaw: Oh yeah, definitely. So my first deal was a 100-year-old house, so you can imagine it already had a lot of problems on it. So I got this call at 11 p.m. on a weekend from one of my tenants. He said, “Dude, man, there’s sewage shooting out the kitchen sink, and it’s all over the kitchen floor right now.” So I was like calling up a cleaning crew, plumbers, at like midnight on this weekend. And of course I had to pay premium pricing because it was on the weekend at midnight. And so the plumber stuck down a camera down the pipe, and he found that the sewage pipe whole line was rusted over and there were roots sticking into it, and it was broken, basically. So it had to be replaced. It cost $9,000 just to replace that line with like PVC and everything and to clean up the mess and everything too. So I was like, oh man, I’m $9,000 under, right? Not only that, there was a lot of these openings around the outside of the house where rats got in and feral cats actually brought fleas in. So I had a flea and a rat infestation at the same house in the same year.

Tim Ulbrich: Lovely.

Ryan Chaw: I know, right? It’s like, come on, man. There’s so much stuff. And then last thing that I didn’t notice was the house actually had no A/C. So I had to — and this was in Stockton, so it gets up to 100 degrees there. So the tenants were complaining like crazy. I ended up having to install a mini-split system that cost me $15,000. Yeah. So like you know, don’t make the same mistakes I’ve made. Obviously I could have easily figured out if there was an updated HVAC system on this house. I was also really terrible at advertising, so I had put up a sign on the lawn, a “For Rent” sign. That didn’t work very well because I ended up getting a lot of calls, but the calls were from people who weren’t very qualified to live at the property. Yeah, it was just from random people. And most of them couldn’t even afford it. And most of them weren’t even students. Lesson learned, get a sewage line inspection during the escrow phase because you can tell if a pipe is broken, and you can use that as a negotiation point at the point of sale, so the seller either cuts you a check at closing or they pay for some of the closing costs to make up for the broken pipe or for a rusted-over pipe with roots sticking into it. Other red flags, look for any signs of water stains or mold because water honestly is one of the worst forces of nature that can totally destroy a house and its structure, especially if untreated. So usually when I go through a house, I kind of have this red flag checklist I look through. Is there water stains? Any signs of mold? Is there any dry rot? You guys can look up dry rot on Google. It’s basically a fungal infection of the wood that can destroy the structural integrity of a house. Are there any strange odors in the house? That can mean poor ventilation. Is the house — do they have uneven flooring? That could be a foundation issue. When the property is listed, is it sold as is? That means the seller is not going to be willing to pay for any fixes that come up during the inspection. So there’s a lot of things I look for on the house definitely.

Tim Ulbrich: Yeah, and what I hear there, Ryan, I guess there’s a couple ways to kind of implement solutions going forward. One is you live the mistake and then you make sure it never happens again or you hear from other folks such as people listening to you and they’re like, OK, got it, checklist system now that I need to have in place. But I think what I hear you really trying to describe — of course there’s going to be maintenance, things that are going to go wrong from time to time, tenant turnover and so forth — but what are those “catastrophic” things that are really going to eat into either your cash flow, returns, your emergency funds, or cause significant issues that you can try to identify and advance. And what process do you have in place to make sure you’re going to do everything that you can to identify what those things would be before you obviously close on the property. Or I guess if the deal is good enough, you account for it in the financials to make sure that you can take on that repair. So that’s helpful. And I really want to spend a few moments here as we wrap up learning about your process for finding high quality tenants because I think, you know, second maybe to fleas or rehab costs or things going wrong, second to that, a common objection is I just don’t want to deal with tenants and multiple tenants and turnover of tenants and what that means. And so I think finding high quality tenants is really an important process. So you have a PRIME process to do that, PRIME. So give us an overview of that method and how and why you created it. And then we can talk further about that.

Ryan Chaw: Yeah, for sure. And this is one of my systems I use to basically automate the whole process. And once you automate everything, honestly I spend less than an hour per week on my properties in general. So creating this system is really key to creating a profitable, successful real estate investment. And so that’s why I’m kind of going through each system and checklist that I have in this interview. So let’s start with the PRIME method. P stands for Placement of advertisements, R stand for Review of social media, I stands for Identifying the type of tenant they are, M stands for Measuring responsiveness, E stands for Ensuring proof of income. So let’s start with the P first. P is Placement of advertisements. You need to place you ads where your target tenants hang out. I made the mistake of just putting a sign on the lawn, right? But putting ads up where your target tenants don’t hang out, it’s like fishing in an empty pool. You’re not going to catch anything, right? Or catch anything that you want, at least.

Tim Ulbrich: Sure, yep.

Ryan Chaw: So what I do is I actually go onto these Facebook groups, Class of 2022, Off-Campus Housing, Rooms for Rent, basically these Facebook groups where the students, college students, will hang out and look for housing. I also contact — last year, I contacted the student government and asked them, can they put some of my ads or fliers up in the school buildings where the college tenants hang out? And so that really actually got me quite a few tenant leads through that. So that’s very important, just placing advertisements, thinking about where your target market hangs out, it’s very important. R stands for Reviewing social media. So that means I go through their Facebook profile, social media, to screen for are they like a party type of tenant? Are they smoking, doing drugs or alcohol in their pictures? Right? Or are they going to a bunch of raves and all that? Are they like more of a studious type tenant who is very focused on their studies, they’re maybe in a professional school like a pharmacy, dentist, medical student, right? A third- or fourth-year student usually are more mature than first- and second-years. They’ve usually got their party life out and all that as well. Just because if I can get one or two studious students in that house, they kind of stop the other students from throwing a wild party because they’re like, “Dude man, I’ve got a midterm tomorrow. I’m not going to stand for us having a drinking party right now.” Right? So that’s important. I stands for Identifying the type of tenant they are. So there’s different types of people out there. There’s ones who will look for the cheapest deal, right? They’ll go for the Motel 6 rather than the Ritz Carlton. But there’s others out there who will go for the Ritz Carlton, right, because they want the best quality deal that’s out there.

Tim Ulbrich: Sure.

Ryan Chaw: So the one who wants the best quality, obviously I would put them in the master bedroom versus the one who wants the cheapest deal, I’ll put them in a smaller bedroom but also the cheapest price bedroom. Sometimes, I have so many tenants that I don’t even have to — the tenants always asking for a discount or a cheaper deal, I could just find another tenant who doesn’t care so much about the price of the rent. But honestly, my houses are half the price of on-campus housing. On-campus housing is around $1,200 a month. And I charge only around $600 a month. So really, it’s a really great market out there. We are providing affordable housing for a lot of students.

Tim Ulbrich: Yes.

Ryan Chaw: M stands for Measuring responsiveness. So that’s the more responsive a tenant is, usually the more responsible they are, the more mature and professional they are, because would you rather have like let’s say you contact a tenant for rent, late rent. Would you rather have them take three weeks to get back to you and say, “Oh, I didn’t see this message,” or something or someone who gets back to you right away. So you measure the responsiveness of the tenant based off of how fast they get back to you on the paperwork you send them or anything you ask of them, right? And then E stands for Ensuring proof of income. So that means you ensure that the parents make enough money to afford the rent. Usually, it’s the parents paying, which is great because what parent is not going to pay for their child’s — you know? And risk their child being evicted from where they’re staying in college, right? Parents are also great because they help clean up after their children too, believe it or not. They’ll vacuum the whole house. I’ll go like, wow, OK, I didn’t have to do anything.

Tim Ulbrich: And easier to communicate with, right? You’ve got a second option if need be.

Ryan Chaw: Yeah. Exactly, exactly. Yeah. And I have like an authority figure I could go to if there are issues with that current tenant too. But I haven’t had to do — I only had to do that once in my whole five years of renting out to students. So yeah, I usually ask for the last two monthly bank statements and FICO score or credit score. The kids also will give me student loan documents or financial aid documents to prove that you can afford the rent, that type of stuff. It’s important to ensure proof of income, especially during COVID if you guys are investing during this time. There are people who have lost their jobs, right? So you do want to make sure that they have a good amount in the bank and that they’re not going to ever have trouble affording the rent because that’s not good for both of you, right?

Tim Ulbrich: Absolutely. So again, that’s the PRIME method for finding high quality tenants. P is for Placement of advertisements, R: Review social media, I: Identify type of tenant, M: Measure responsiveness, and E: Ensure proof of income. So Ryan, one of the things I was thinking about as you were talking, just by the nature of who you’re often recruiting as a tenant, obviously a college town, health profession types of students, I would assume that would almost refer themselves, that you — the advertisement may be important up front and perhaps if you have a vacancy, but I could see where P4s, P3s, P2s, even if they’re in a medical school, M4s, M3s, where they are often talking among themselves. And it’s like, if there’s a good deal and it’s a nice property and they feel like you’re a good landlord, then they’re going to refer that to their peers. So is that something that you find to be true?

Ryan Chaw: Oh yeah, definitely. Nowadays, I get about 50% of my tenants just through referrals, basically guys that say like, “Hey, I have this friend who also wants to stay at the property because I enjoy staying here. And I was wondering if I could bring some of my friends in.” And I’m like, “Yeah, totally fine. Just have them shoot me a message.” And so I’m able to actually get a lot through referrals. So it’s kind of like one of those businesses — at the beginning, you do have to put in a lot of work to establish your reputation. But then, if you treat your tenants right, you treat them with respect, then it really snowballs to a point where it’s pretty much all automated. The tenants start looking for you instead of you having to do that push and advertise and look for them.

Tim Ulbrich: That’s great. And thank you for sharing that input in both the method for finding tenants, some of the red flags that you look for when you’re acquiring a property, looking at properties, as well as your current status of your portfolio. So great to have you back on the show. And I want to wrap up by — I always like to ask guests, you know, what resources would you recommend to those that are looking to get started or even continue their journey in real estate investing?

Ryan Chaw: Oh yeah. So I would say Bigger Pockets does provide a lot of resources. I actually went on their podcast yesterday. So keep an eye out for that episode.

Tim Ulbrich: Hey, no way!

Ryan Chaw: I talked about student housing. Yeah, I did. On the Rookie podcast.

Tim Ulbrich: Yeah.

Ryan Chaw: On the Rookie podcast that they just started out. Yeah. And then there’s some books you guys can definitely pick up. “Rich Dad Poor Dad” is definitely a go-to. There’s “Millionaire Real Estate Investor” by Gary Keller. Gary Keller is one of the big names. He actually owns Keller Williams realty company. There’s also — let’s see — there’s some mindset books I can recommend. There’s the “High Performance Habits” by Brendon Burchard. That one’s a great one. Oh man, there’s a lot out there.

Tim Ulbrich: But those are good. Those are good recommendations. And we will — I subscribe to the Real Estate Rookie podcast, so when we see that go live, we’ll link to that in our show notes as well. So.

Ryan Chaw: Oh, that’s awesome.

Tim Ulbrich: Yeah. No, that’s awesome to see a pharmacist investor featured on the Bigger Pockets site. And what’s the best way for our listeners to contact you and follow the journey that you’re on?

Ryan Chaw: Yeah, definitely. So I have this free PDF for anyone just trying to get started in real estate investing, especially the student housing market and some about the strategy that I use. You can actually get that at my homepage at www.NewbieRealEstateInvesting.com. That’s www.NewbieRealEstateInvesting.com.

Tim Ulbrich: Very cool. So just logged on there, we’ll link to that in the show notes, “The unique and highly profitable strategy I use to go from newbie real estate investor building a portfolio that generates just under $11,000 every month.” So we’ll link to that in the show notes. Ryan, thank you so much for coming back on the show, for sharing your journey, and I’m sure this won’t be the last time. So I appreciate your time.

Ryan Chaw: Oh yeah, for sure. Thanks again, Tim. I appreciate being on the show, and I hope your audience got a lot of good tips there. And you know, real estate’s all about connections, guys.

Tim Ulbrich: Absolutely. And to the YFP community, as always, if you liked what you heard on this week’s episode, please go and leave us a rating and review on Apple podcasts, wherever you listen to the show each and every week. And if you haven’t yet done so, make sure to join us in the Your Financial Pharmacist Facebook group, over 6,000 pharmacy professionals that are committed to helping one another on their path towards achieving financial freedom. Have a great rest of your day.

 

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YFP 172: Should You Be Concerned About the Projected Decline of Pharmacy Jobs?

Posted on by yfpadmin


Should You Be Concerned About the Projected Decline of Pharmacy Jobs?

Tim Ulbrich gives his thoughts on the outlook of the pharmacy job market, what to make of the U.S. Bureau of Labor Statistics’ projection for a 3% decline in pharmacy jobs over the next 10 years, and how this impacts your financial situation and plan. Tim also shares 10 steps you can take now to hedge your financial plan against job loss or reduced hours.

Summary

Tim Ulbrich addresses the Bureau of Labor Statistics’ projection for a 3% decline in pharmacy jobs between the years 2019-2029, which would equate to about 10,500 fewer pharmacy jobs. This projection is generating a lot of conversation in the pharmacy community as this has the ability to make a large impact on the profesion.

Tim dives into the data from the BLS as well as from the AACP Graduating Student Survey, the National Pharmacist Workforce Survey, ASHP Residency Match Statistics and the Pharmacy Demand Indicator and shares his opinions on what to make of the data and discusses the pharmacist job outlook for the future.

Finally, Tim shares 10 steps that pharmacists can take to hedge against job loss or reduced hours:

  1. Do everything you can to reduce credit card and consumer debt.
  2. Don’t become house poor.
  3. Understand debt repayment plans and options for your student loans.
  4. Make early aggressive retirement savings if possible.
  5. Diversify your income.
  6. Network (and don’t wait to do so until you’re in dire need of a job).
  7. Get rid of car payments to build a margin in your financial plan.
  8. Develop a plan to reshape your mindset.
  9. Surround yourself with people that challenge you in a positive way.
  10. Have a good coach to help you develop a strategy and hold you accountable.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Welcome to this week’s episode of the Your Financial Pharmacist podcast. My name is Tim Ulbrich, and this week, I wrap my arms around what to make of the BLS-reported 3% decline — that’s the Bureau of Labor Statistics reporting a 3% decline in pharmacist jobs projected over the next 10 years — and the implications this may or may not have on your financial plan. And we’re going to tackle this in three parts today. I’m going to present the data that’s available and some of the statistics around this as we look at this issue, then in part two, we’ll talk about what to make of this data, my interpretation, and then finally what this means for your financial plan. I’ll talk about 10 steps that I think you can take right now with your financial plan to hedge against job loss or reduced hours.

Now, let’s start with a few very important disclaimers before we get into the weeds on I think what a topic that can often evoke significant emotion for good reasons. And first and foremost, these are my opinions and projections. Yes, I’m going to dig into the data that I think will support my argument. But as you know, as I know, this topic is complex and has many contributing factors when we’re talking about the outlook of the job market. I would also reference you to Lucinda Maine, AACP Chief Executive Officer, in May of 2019 wrote an article, an opinion piece, in the American Journal of Pharmaceutical Education, called “It Really Isn’t That Simple.” And I would encourage you to take a look at that, whether you agree or disagree with parts of that, I think that it’s a good piece that helps to shape our mind around the complexity of this issue. Now, other disclaimer here that I think is important is as we look at the profession as a whole, we of course are generalizing. And this may or may not reflect reality for you, the listener, and your personal situation. Every single one of us is in a unique situation. And I think that’s one of the challenges that comes with this topic when you hear statements such as the “gloom and doom of the future of the pharmacy job market.” Well, it depends, right? It depends on your area of work, it depends on the supply and demand of your area of work, it depends on where you live, it depends on your training that you have, so many factors. And of course here in part, although I’ll try to break down, in part we’re going to be generalizing as well. Now, it’s easy to go down the pain train, right? The gloom and doom, whatever you want to call it. And my challenge for you is to join me today in objectively looking at the data and applying it to your own personal situation to make your own conclusions — not what I say, not what some other podcast or blogger says, but to make your own conclusions and hopefully to even investigate this topic further. The other thing I’ll say here before we jump in is that there are some principles for personal finance that are tried and true that should be adhered to whether the Bureau of Labor Statistics is reporting a downward trend or not, even if they’re reporting an upward trend in the pharmacy job market over the next 10 years, which is not the case. But if they were, there are some sound financial principles that are true across the board. And we’ll talk about some of those in terms of building a solid financial foundation.

Now, we’ve talked about this topic before, right? Episode 058, I had Deeb Eid on talking about how good is the ROI of a pharmacy degree. Episode 122, we had past president of AACP Todd Sorenson on talking about what will the future of the pharmacy practice be. But we need to keep talking about this issue, and that’s why we’re doing it again here today, because as with many things, we’re going to see data shift over time, we’re going to see new issues that come up. And this isn’t something that we should be talking about just one time.

OK, let’s jump into the data. I want to talk about data from the Bureau of Labor Statistics. I want to talk about data from the Pharmacy Demand Indicator, which is published by PharmacyManpower.com. I want to talk about some of the data published by the American Association of Colleges of Pharmacy and their graduating student survey around student loan debt. And I also want to talk about some of the data as it relates to the residency match statistics. And I think it will become clear why I’m choosing these four areas as we progress further on this episode today.

OK, so the purpose of this episode is looking at first and foremost the Bureau of Labor Statistics data. And that’s available at BLS.gov, if you google BLS and pharmacist, you’ll find this data specifically. But what they’re projecting is a 3% decline in jobs over the next 10-year period for our profession as a whole. And so what this looks like specifically is a projection between 2019 and 2029 of 10,500 fewer jobs in 10 years, 2029, than were there in 2019. Now, this is really interesting, right, because you start to think about the number of new graduates that are coming out each and every year, you start to think about some of the pressures, which are well known, on our profession in terms of some of the automation, the technology, maybe perhaps in some areas the oversupply that already exists. And so when you start to see a continued trend towards graduates coming into the space, new licenses that are granted but a projected decline in jobs, of course that’s going to raise some concern. And rightfully so. And we’ll talk about that more here on this episode. Now, to be fair, the Bureau of Labor Statistics, which also reports median pay for pharmacists, this is still pretty strong, upper $120,000s. Now we know that that of course varies by role, by experience, by training that you have, by geographically where you live, supply and demand. But overall, we continue to see the median pay of pharmacists to be pretty strong. But we can’t ignore the fact that there’s a projected decline in jobs in our profession over the next 10-year period.

Now, I also want to say here, for those of you that are familiar with some of what led to the expansion of the number of pharmacy schools and the expansion of the class sizes for existing schools, that goes all the way back to when there was a projected significant need for pharmacists because of several factors: One, the continued rise in the number of medications that are used by Americans, the aging population of our country, which obviously could further exacerbate the number of prescriptions dispensed and therefore the number of individuals that are needing care from a pharmacist, as well as a projected evolution of the role of the pharmacist, which we have seen play out in some regards but not to its full effect it was projected. So it’s important that we’re talking projections here, right? And a lot can change. What we saw there was a projected significant need in the early 2000s that didn’t pan out like we thought it would. And so therefore, we saw this change in supply and demand. But perhaps we may see that go the other way, right? What if we had some significant evolutions in the profession over the next 10 years that the BLS is not projecting? We could certainly end up in a situation where we have some demand or it could go the other way as well. So again, projections, projections, projections. And we don’t know exactly what will pan out over the next 10 years.

Now, the second data point I want to talk about is from the PharmacyManpower.com, and we’ll link to that in the show notes. And this is called the PDI, the Pharmacy Demand Indicator. And unfortunately, it hasn’t been updated since the fourth quarter of 2018, but if you look at the last 10 years, we certainly see a national trend towards demand being in balance with supply whereas in 2008, this was really closer to having significant and in some cases moderate demand with difficulty filling positions. So the difference from 2008 to 2018 is pretty significant, so they look at this on a 5-point scale. And we’re currently, as at the last measured date in Q4 2018, we’re exactly at a 3 — actually, I think it was just below that, like 2.99, which essentially means that we’re, nationally speaking, we have supply and demand that has equalized. And of course, we probably have seen that shift. We don’t have the data from the PDI, but we probably have seen that shift based on other indicators where there now is more supply than there is demand. So that was a 3 on a scale of 5, but in 2008, this was actually a 4 on a scale of 5, signifying moderate demand with difficulty filling positions. So we say a 1-point shift on a 5-point scale happen in a 10-year period. And again, if you dig deeper by region, by specific area, by role, you’ll start to see some differences. But generally speaking, we can’t ignore that. There was certainly a shift that happened in supply and demand. So again, looking at the data here.

Now, the third data point I want to look at is the graduating student survey that’s published by the American Association of Colleges of Pharmacy, AACP, each and every year. So this is a survey that goes out to graduating students. And one of the questions that they ask on that survey relates to student loan debt. And for the Class of 2020, we see that number now inching up in terms of median student loan debt for graduates, all school, so public and private — obviously we see a significantly higher number for private than we do public — but we now are approaching $175,000 as the median debt load for those that graduate having borrowed money to obtain their PharmD. And that’s an important distinction because not every graduate comes out with student loan debt, right? So this is not a number that transcends all graduates. The data shows 86% of respondents — and this has been pretty consistent — 86% of respondents report graduating with debt related to borrowing for their PharmD. And of those that do have debt, the median debt load is now approaching $175,000. Now if we look at this as another data point from the National Pharmacists Workforce Survey — again, we’re going to link to this all in our show notes so you can dig deeper and make your own conclusions — this is conducted about every five years. And the 2019 data shows us that pharmacists who reported graduating during the last decade reported a median student loan debt at the time of graduation of just over $142,000, which was higher than the median debt at graduation of $82,000 reported by pharmacists graduating between 2001-2010. So let me say that those numbers, again, for pharmacists that graduated between 2001-2010, their mean debt was about $82,000. As those who graduated between 2011-2019, their debt was around $142,000, just shy of actually $143,000. So whether you’re looking at the AACP data, whether you’re looking at the National Pharmacists Workforce Survey data, it doesn’t matter. You see the same trend of a significant increase in debt load of graduates that far outpaces inflation and far outpaces any increase in tuition that you see across the board as it relates to higher education. I think that’s often an argument that you will hear is well, of course debt load’s have gone up. That’s been true of all higher education that’s gone up faster than the pace of inflation. But if you look at pharmacists’ debt load specifically, not only is it higher than inflation has gone up — significantly higher — but it’s also higher than the general trends that we’ve seen and the increase of indebtedness of college graduates across the country.

And so just to give you some data, when we look back to 2010, according to the AACP graduating student survey, the median debt load of a graduate was $100,000. And as I mentioned, in 2020, 10 years later, we’re looking at about $175,000 as the median debt load. So a $75,000 increase in a 10-year period. So again, the data, right? We’re talking about the data here. So the BLS is reporting projected 3% decline in jobs over the next 10 years, the PDI, the PharmacyManpower.com looks like we’re certainly moving towards a direction nationally speaking of being more on the side of supply more than demand, and then here we’re looking at the AACP and the National Pharmacists Workforce Survey that are suggesting a significant increase in debt load over the last 10 years.

Now, also important, as I mentioned, the fourth data point I want to consider here is the ASHP residency match statistics because you know, one of the things we want to consider is how many of our graduates are going into pharmacy residencies, is there a continued increase in that, and how might that be playing into the broader pharmacy job market? And what we see with the match statistics is that it remains difficult, with a pretty steady match rate reported of around 65% — so this is referring to those that apply for residency, about 65% of them are successful in obtaining a position through the match. So you know, overall, remains pretty difficult. Interestingly, if you look at the last five years, you see that the number of resident applicants climbed from about 5,000 to 7,300 over the last five-year period while also seeing a growth in the number of positions that are offered, growing from 3,700 to 4,800. But of course, if we have 7,300 applicants and 4,800 positions, we still see a significant number of people that are applying for residency that aren’t getting a position. Now, why is this important to the job discussion? If you think about the timeline of when the match is happening, these individuals are often finding out into late March and April about whether or not they’ve been successful in obtaining a position. So if we see 35%, let’s just generalize this here, 35% of applicants, most of whom are P4 students getting ready to graduate, that apply for and are unsuccessful in obtaining a residency position, they obviously are at a point of time where there’s not a whole lot of time between when that decision has been made, when they find out about that, and when they’re going to graduate from school. And so that may have implications in terms of delayed time of being able to find a position and/or finding a position in which meets their interests and career goals going forward. So that’s the data.

Now, the second part I want to talk about is what do we make of this data? So the question here is what will the job outlook be over the next 10 years, right? And as I’ve already alluded to, I think that really depends on a few important factors, including but certainly not limited to the number of pharmacists that retire, right? This is an important variable that really played a big role, I think, in why we saw what we saw in terms of the shift of supply and demand over the last 10 years. 2008 hits, a major recession, any major recession, you can expect that’s going to delay people’s timeline to retirement. So one of the questions we still have here — and time will tell, it will depend on the pandemic — but does the pandemic and the impact that has on financial plans of those that are near retirement, does that impact the number of pharmacists that would have retired pre-pandemic to now where we are obviously through a pandemic? So what will happen over the next 10 years? How many pharmacists will retire? We don’t know. But will that be an indicator, will that have a significant impact on what the BLS is projecting? No. 2, perhaps most importantly, is the evolution or not of the pharmacy role beyond the traditional dispensing role? Now this has happened in some regard. We’ve had great examples of this happening here in Ohio, but will that continue and to what level will this continue, not only in terms of being able to have advanced roles and responsibilities through advocacy efforts, through legislation, through practice acts, but being able to translate those expanded roles into positions that can be justified and that there’s a business case for those positions being there. So what will that evolution or not look like of the pharmacy role? And then, you know, I think we also need to look at here what will be the trend in the average number of graduates? So standard supply and demand would suggest that there may be some contraction that’s happening naturally already of the number of graduates that are coming out, the number of students that are admitted. Will class sizes be reduced? Some colleges have already done that. What will that trend be or not be over the next 10 years? Will it continue where we have perhaps a lesser number of graduates that are coming out over the next 10 years? And we’ve seen over the previous 10 years, of course, with a lot of expansion in class sizes and colleges that have happened over the last 10 years.

And as I already mentioned too, I think another important variable we have to look at when trying to answer this question, what will the job outlook be over the next 10 years? is how will residency program growth continue? And can that program growth, will it or will it not keep up with the applicant interest?

So here’s the reality is that while globally, the data doesn’t lie, right? We certainly have seen brighter days relating to job projections, supply and demand, related to student loan debt figures, all of the data I presented, not all pharmacy students and career paths and opportunities are the same. Right? So when you start to break down the data, you noticed a few different things, that different career paths have different outlooks, naturally, right? Those that perhaps complete advanced training, whether that be a PhD or residency, a Master’s degree, that certainly may lead to a different outlook. Somebody who is in a health system versus a community setting, somebody who’s in ambulatory care, somebody who’s in specialty, somebody who pursues an industry fellowship, all career paths have different outlooks. And we need to slice this data a little bit thinner and have better data to help inform some of the career choices and outlooks going forward.

Where this data also looks different when you break it down is naturally different areas of the country based on the number of pharmacy schools, based on the patient population and the needs, based on of course cost of living and other things, we see significant differences from one pharmacist to another in different areas of the country, which again, make this difficult to generalize. And of course, individual factors: experience, networking, hustle, advanced training, all of those things that sometimes are difficult to measure, which can have a significant impact. And if you talk to 10 pharmacists, I believe you’ll get 10 different opinions and outlooks. There’ll be some similarities there, but 10 different opinions and outlooks on what the future holds because of those nuances that are different: the career path, where they live, their training and some of those individual factors that I mentioned.

So you know, would I make a recommendation that someone enter the pharmacy profession? And I think it really depends on several factors of which I’m going to come back to a little bit later in the episode. And I think one of the things that, you know, we can do and continue to work on in academia is that really focusing on helping students get broad career advice, giving them the skills and advice necessary to help equip them to demonstrate how a PharmD education, how that skill set, can be transferable, right? It can translate into other roles beyond what we think about of the traditional dispensing role. How can we create new positions? How can we be flexible in other areas of the health care system that could benefit from the role and the value that we know pharmacists can bring and that has been documented in the literature over and over and over again.

Other interpretation I have of the data is that I think we are going to see a continued compression on pay where oversupply is prevalent, where automation and technology is threatening positions in certain areas of our profession, where the role is perhaps not evolving beyond traditional dispensing. And so I think we’re already starting to see this in some regard. If you look at the 2019 National Pharmacist Workforce Survey, what you’ll see there is while it’s still a small number, “a considerably higher proportion” — direct quote from that survey — “a considerably higher proportion of full-time pharmacists in community retail pharmacies, approximately 12%, reported a base pay decrease in the past year compared to full-time pharmacists in hospital settings.” So only 12%, but it’s important that we’re talking about a pay decrease, given that naturally costs of things will go up over time. So I think that’s a trend we need to keep an eye out for in the future. I think we’re also likely to see interpretation of data, continued stress among pharmacists as they’re being asked to do more with less, especially in traditional dispensing types of settings, that could lead to burnout, will likely lead to burnout, could lead to decreased satisfaction with work, and certainly through that, could put pressures on one’s financial plan, depending on how long they want to do and what options they have beyond that work.

So you know, for prospective PharmD students that are listening, I think this is really true of anybody who’s evaluating a career decision, I think you should ask yourself, what’s the return on investment of the degree? Looking at all the data that we just looked at, what’s the return on investment to the degree? Also, what’s the opportunity cost of the time spent getting that degree? And then how does this align with your interests? What’s the motivation behind pursuing this degree, whatever that degree would be? And if there were some bumps along the way, how would you feel about pursuing that path? So certainly, the ROI of the degree has changed — again, generalizing here. The opportunity cost, we know what that is given the time length of the degree. But if somebody is passionate about healthcare and what the pharmacy profession has to offer, you look at that alongside of that ROI, alongside of that opportunity cost to try to make that best decision for your goals and for your career path going forward.

And so I want to shift here to the third part to talk about what this means for your financial plan. Now, I want to start this by saying for those that are facing a financial hardship or job loss in the moment, I hope you will check out Episode 115, where we talked about strategies to handle student loans, to handle healthcare expenses and other things that come along when you’re dealing with a financial hardship or job loss. And before we jump into some steps that I think you can take to essentially help hedge you against some of the negative aspects that can come from job loss or reduced hours, I think we first have to ask some questions and reflect on some questions that will help inform how you shape your financial plan around this. No. 1, how much do you enjoy your work? Are you somebody that graduated a few years ago and you look up and say, ‘I love what I’m doing. I could do it for another 30 or 35 years,’? Or are you wondering, how in the world am I going to do this for another 30 or 35 years? Again, that might shape how you address certain parts of your financial plan. Second question, what demand is there for you, for your experience, for your skill set? Essentially, how marketable are you if for whatever reason you want to do something different or something were to happen to your position? How easily or not could you pivot to another area of practice? And of course, factors like is it one income in the household? Is there two incomes? How much flexibility do you have with your financial plan in terms of needing your income? And those questions, answering those questions, reflecting on those questions, are important as I head into this final section as we talk about 10 steps to take right now with your financial plan to hedge against job loss or reduced hours.

OK, so No. 1 — and we talked about these in Episode 026 of the Your Financial Pharmacist podcast, these are the baby steps, the baby steps in your financial plan — No. 1 is making sure you’re doing everything you can to reduce your credit card debt, your consumer debt, to minimize, get rid of it. And number two, to build the emergency fund, the rainy day fund, 3-6 months of expenses, so that if or when a job loss or financial hardship hits, you can weather that storm without taking on additional debt and hopefully you can cash flow some of those expenses without disrupting the rest of your financial plan. So if you are listening today, struggling with consumer debt, credit card debt, or you don’t yet have a solid emergency fund in place, that should be the No. 1 thing. We talk about that in more detail on Episode 026 if you want to go back and listen.

No. 2 is not becoming house poor. Now, we talked about this on various episodes related to home buying. I think it’s one of the — probably one of the biggest challenges that pharmacists is that their home and their home expenses can take up a significant percentage of their take-home pay. So for those that have not yet purchased a home, trying to purchase a home in a way that you can have as much discretionary income as possible, obviously you want to enjoy that piece as well. But for those that are in a home, what are some options that you have to potentially decrease that percent of your take-home pay that is going to your home each and every month through mortgage, through property taxes, through insurance, and through expenses that come with owning a home, right? Because what we’re trying to think about here is if we can let’s say take the percent of our take-home pay that goes to our home from 40% down to 20%, obviously we just have more margin to achieve other goals but also be ready to handle and to hedge ourself against some of the negative aspects that come from a job loss or reduced hours. So that could come from refinancing or restructuring a mortgage, of course that could be something more extreme like downsizing, but I think there’s several options there that you can consider.

No. 3 is making sure you understand your debt repayment plan and options. And here, I’m specifically talking about the student loan debt for those that are still facing student loan debt. Now, why is this important as we talk about hedging against job loss or reduced hours? It’s because there are so many options that are out there and available, both in the federal system and the private system. So this could be different, right? Those of you that are pursuing loan forgiveness, those of you that are not, that certainly can depend how much is coming out of pocket each and every month. Is there an opportunity to pivot repayment plans if necessary to an income-driven repayment plan that might have a lower monthly payment, which of course could free up some cash flow. Is there an option to refinance in the private market and extend that repayment period or re-refinance if you needed to and extend that repayment period so you could free up some of that monthly cash flow? So if you’re hearing this and you’re wondering, have I evaluated all the options? Have I considered what’s that one best option for my repayment plan? Do I have a good understanding so that if I had to make a pivot, I’m ready to do that? Please check out our latest resource, written by Tim Church, “The Pharmacist’s Guide to Conquering Student Loans,” available at PharmDLoans.com.

No. 4 is making early, aggressive retirement savings if you can. So if you find yourself in the event of reduced hours, reduced pay, or job loss, obviously that time period is going to hinder your ability to save for retirement. So if you’re able to make early, aggressive retirement savings, you’re going to be able to reap that continued benefit of compound interest that will come from those early savings that were made. So we talked at length during our investment series on episodes 072-076 on investing, all things investing, including retirement savings, vehicles to do that, priority of investing, understanding investing accounts. So I would encourage you to check that out.

No. 5 is thinking of how you can diversify your income. Now, this could be a through a side hustle. We’ve talked about these through the side hustle series on the Your Financial Pharmacist podcast. We’ve featured stories of those that are doing medical writing, most recently we had Austin Ulrich on the show, talked about this, Brittany Hoffman-Eubanks, we talked about on a previous episode. It could be a second part-time job that’s in a different area of practice, so I’ve talked with many pharmacists that are working maybe 32-40 hours in a community setting and then have a PRN position in a hospital setting, which obviously gives them some diversification — not only additional income, but diversification into another area. It could also be through real estate, right? We’ve talked with several pharmacists on this show before that have done real estate and real estate investing in many different ways that has allowed them to produce some cash flow to achieve their financial goals but also has helped to diversify their income. So diversification of income I think is an important consideration.

No. 6 — and we’re going to get into some of the softer sides here of the financial plan — No. 6 is networking. We talked about this at length on Episode 116 with David Burkus, author of “Friend of a Friend.” We talked about transforming your life and career through networking. And this is one of those things that is drilled into us while we’re in pharmacy school: networking, networking, networking. But I think it often is hard to wrap your arms around the benefits that come through networking, whether that be collaboration in your job, whether that be staying sharp with your skills, whether that be having somebody that you can lean on when you’re in a difficult time that’s going through perhaps a similar situation at work. But networking and the value of building your network and the value that comes from that building is important to establish that before you have that dire need for that network, whether that’s because of reduced hours, job loss, or reduced pay and you want to look at something else. So shoutout here to the collaboration that we have with the American Pharmacists Association, that we provide personal finance education for APhA members. You can learn more at Pharmacists.com/YFP. We offer 30% off YFP products and services to APhA members. And for those of you that are not yet an APhA member, make sure to check out that membership options, Pharmacists.com, use the coupon code YFP2020 for 25% off membership.

OK, No. 7 is getting rid of those car payments. And this kind of goes along with the home buying is we’re trying to build margin in our financial plan. So if we can get rid of those car payments or minimize those car payments, then obviously we’re going to have more income. So way back when — we’ll link to it in the show notes — I wrote a blog post, “My Top 10 Financial Mistakes.” And number seven was buying a car I had no business buying. Now you know, obviously we all make financial mistakes, I continue to make financial mistakes, and this was one of those that was not catastrophic but really was something that wasn’t needed and ultimately delayed our debt repayment plan. So 2014, Jess and I were still trying to get rid of our student loans, I bought a really nice used Lincoln MKX while I had a perfectly functioning and paid off Nissan Sentra with less than 50,000 miles on it. I ended up reselling the Lincoln MKX, no big deal, actually used those proceeds ultimately to pay off student loans. But it was tax that I had to pay that I didn’t need to have to pay, it was getting rid of a used off car, a depreciating asset that I could have had. And if you look at right now, the average monthly payment on a new vehicle is now north of $500 a month. And so if you’re somebody who’s struggling with debt or getting better control of your monthly expenses, this is really an area I’d recommend you take a look at to see if there’s an option to cut back or to pivot your car situation so that you can free up some of your monthly cash flow.

No. 8 here is developing a plan to reshape your mindset. Really, knowledge is power when it comes to your financial plan. This could be through reading, this could be listening to podcasts such as this one. You know, at the end of the day, the more you learn, the more you empower yourself, the more you put yourself in a position of really having a solid understanding of your financial plan and learning as much as you can about this, you’re going to find yourself in the driver’s seat. You’re going to find yourself making decisions that are going to put you in control of your financial plan rather than external situations that are dictating your plan for you.

No. 9 is surrounding yourself with individuals that will challenge you in a positive way and that share your same goals and vision. You’ve heard this before that we tend to take on the behaviors, the beliefs, the actions of those that we’re around most. And so here, when we’re talking about our finances, if you have a goal, let’s say to achieve financial independence, if you have a goal to cut your expenses and reduce your lifestyle so that you can ultimately get to the things that are most important to you, surrounding yourself with folks that have a similar philosophy, that are spending their money, spending their time in a similar way, can have a profound impact on your own personal situation. And so really evaluating who you’re around, that could be certainly family, friends, making sure you have good accountability, jumping into groups like the YFP Facebook group where you’ve got folks that can encourage you, folks that can answer questions that you have, folks that can share in a win that you have with you, I think you’ll find that to be really a significant impact on your financial plan.

And No. 10 is having a good plan and having a coach. Now, this obviously is self-serving. But I believe in this wholeheartedly. So obviously we offer one-on-one comprehensive financial planning at Your Financial Pharmacist. I would encourage you to check it out: YFPPlanning.com. You can schedule a free discovery call to learn more about our services, see if it’s a good fit for you. Whether it’s us or whether it’s somebody else — I hope it’s us — having an accountability partner, having a coach, having somebody that can work with you one-on-one to help look at all of these various aspects of your financial plan and help you develop a strategy to how you can prioritize those and to help keep you accountable in that plan is incredibly, incredibly important. It’s been significant for Jess and I in our own financial plan. We’ve seen it in many of our YFP clients. And I encourage you again, you can check that out, YFPPlanning.com. But No. 10 here is having a good plan, having a coach, having a good accountability partner that will join you along the way.

So that’s a lot, right? We talked about some of the statistics of what we’re facing as it relates to the pharmacy job market. It doesn’t look great, right? Compared to what it was maybe 10 or 15 or 20 years ago. But we also talked about how to interpret that data, and the reality is we can’t just look at that data and say it’s gloom and doom. We need to look at the individual aspect of one’s profession, of your situation, and really try to understand, what is the true risk as it relates to your position, your area, and your financial plan. And then ultimately, what are some things, what are 10 things that we talked through that you can do right now to start hedging yourself against a potential reduction in hours, reduction in pay, or obviously worst case scenario there would be job loss. Now, the reality is those 10 things, even for those of you listening that say you know what, I’ve got a secure job, I’ve got options, I’ve got diversified income, those 10 things are 10 things that will benefit your financial plan regardless of what you perceived of the outlook of your position going forward.

As always, thank you so much for joining me on this week’s episode of the podcast. If you haven’t yet done so, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And again, if you haven’t yet joined us in the YFP Facebook group, I hope you will. Over 6,000 pharmacy professionals that are committed to helping one another on their path towards achieving financial freedom. Have a great rest of your week.

 

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YFP 171: How Austin Successfully Made the Financial Transition to New Practitioner Life

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How Austin Successfully Made the Financial Transition to New Practitioner Life

Austin Ulrich joins Tim Ulbrich to talk about how he and his family successfully navigated the financial transition from student pharmacist to resident to new practitioner. He discusses how they were able to become debt free while completing residency training, why and how he started a medical writing business, what it was like to finish residency and find a new job in the midst of a global pandemic and what they learned from their first home buying experience.

Summary

Austin Ulrich, a new practitioner, joins Tim Ulbrich on this week’s podcast episode to discuss four major areas of his life: paying off his student loans, building a side hustle and how he was able to make money medical writing, buying a home on the other side of the country and signing onto his current position.

Austin explains that he’s always been “allergic to debt” and obtained scholarships to pay for his undergraduate education. He did have to borrow money for pharmacy school loans but by making wise financial decisions, he and his wife were able to pay off $80,000 in loans during his residency training. Austin explains that there were some key decisions that helped them optimize the loan payoff. They purchased a home that allowed them to have a much lower mortgage payment versus what their rent cost would have been. When they sold the home they ended up making a good profit off of it and paid over $40,000 toward their student loans. He also explains that him and his wife were on the same page with finances and kept expenses down where they could.

Austin digs into his side hustle business, Ulrich Medical Writing, which helped him to pay off of his loans. Without this additional income, he would not have been able to pay off his loans as quickly. Austin also discusses how he and his wife purchased a home on the other side of the country during a global pandemic and how his relationship building and networking afforded him the opportunity for a career in a tough market.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Austin, glad to have you on the show. Thanks for taking time.

Austin Ulrich: Yeah, thanks, Tim. It’s great to be here.

Tim Ulbrich: So we’ll dabble more into this as we get into the interview, but you just finished up residency, moved from Oregon to North Carolina in the midst of the global pandemic. So what have been your first perceptions as you move across the country and got your first taste of the Carolinas?

Austin Ulrich: Yeah, I mean, it’s definitely been a big change for us moving across country with three kids. There were a lot of logistics involved in that. But there are a lot of bugs in the South that we’ve kind of discovered compared to Oregon. But you know, it’s really green here, and we like that. And really nice people and good southern food. So there’s a lot that we like about being here.

Tim Ulbrich: And kudos to you and your wife for moving the three kiddos across country. My wife and I — or at least I — have always joked that we made that move with three before we had our fourth from just Cleveland to Columbus, Ohio, only two hours. And I said, “I’m never doing that again.” So kudos to you guys for making that transition. We’ll talk about your career story, what you’re doing, what really necessitated that move and we’ll weave that into your financial story as well. So we have lots of different parts of your story that I’m excited for our listeners to hear. And you and I first connected on LinkedIn back in May of 2019. You sent me a message sharing your story regarding your financial journey, which by the way, I love getting messages like these and hearing from pharmacists across the country. And as we went back and forth a little bit, you know, as I heard about your transition from student pharmacist to resident to new practitioner, I really said, you know, you’ve got so much going on that we have talked about extensively on the show but such a great example I think of how with intentionality, you can make this transition — I will not always say with ease — but how you can successfully make this transition and really be able to have it be done in a way that will set you up for long-term success with the financial plan. So we’re going to talk about four areas of your financial plan: No. 1, paying off all your student loans; No. 2, building your medical writing side hustle business; No. 3, buying a home and what that was like; and No. 4, signing onto your current position during the COVID-19 pandemic. So let’s start with tell us a little bit about your journey into pharmacy, where you went to school, when you graduated, and ultimately, how you chose the residency path that you did.

Austin Ulrich: Yeah, so I’m originally from Ogden, Utah. And that’s a small town that’s north of Salt Lake. But I did undergraduate at Weaver State University there in Ogden and did pharmacy school at University of Utah. And so I graduated there in May of 2018 and then after that is when we moved out to Oregon, where I did a PGY1 residency at Providence Health and Services and then finished my PGY2 residency in ambulatory care and academia at Pacific University and Virginia Garcia Memorial Health Center.

Tim Ulbrich: So where did your interest in ambulatory care come from?

Austin Ulrich: You know, I’ve really always been interested in ambulatory care since starting pharmacy school. One of the first pharmacists I shadowed was an ambulatory care pharmacist. And at the time, I didn’t know that that was really a career option being fairly new to pharmacy. But I was really impressed how he was able to interact with physicians and with patients and have a lot of influence in how the patients were treated. And so throughout pharmacy school, that was one of my areas of focus and specifically during those years of 2014-2018 while I was in pharmacy school, I saw a lot happening where there seemed to be a shifting focus even more so toward ambulatory care within the pharmacy sector. So you know, it just felt right as far as economic opportunities in the future as well as I love talking to patients and getting that face-to-face interaction. And then the hours really fit well with the family lifestyle. So all those things are some of the things that I love about ambulatory care.

Tim Ulbrich: And in order to get there, like many pharmacy students and residents, you had to take on some debt to do that. So I want to talk about your student loans. I mentioned in the introduction part of the journey is paying off all of these loans. And we’ll talk about how you did that, but first, I’m sure as many of our listeners are wondering, what was the amount? What were you dealing with? What were you working with? Were you able to keep that low because of scholarships or other opportunities? You mentioned the in-state tuition piece. So tell us about your student loan debt, specifically as you went through pharmacy school.

Austin Ulrich: Yeah, so I’d like to preface this by saying I feel like I’m fairly allergic to debt and student loans. I have really bad reactions to it. So in my undergrad, I was pretty diligent about getting a scholarship to cover all that. But with graduate school and pharmacy school, that’s not really possible unless you have some sort of large sum of money fall into your lap. But so over the course of four years of pharmacy school with in-state tuition, I acquired — I guess I should say — $80,000 in student loans. And that’s with interest. That’s the full amount that would have been paid off.

Tim Ulbrich: OK.

Austin Ulrich: So that was the amount of student loans that I had coming out of pharmacy school. And you know, I would say that my wife and I really worked hard on making wise financial decisions, even though — I mean, we both knew that we didn’t want a lot of student loans. And so she worked as a nurse during pharmacy school and put a lot of hours into that. That was definitely something that was really helpful. And I worked as well as a pharmacy intern. So kind of our two part-time incomes put together helped keep that burden down as well as I was fortunate to receive a few scholarships that helped keep the loans down. But one of our philosophies was that we wanted to borrow as little as possible while still being able to maintain, you know, a decent amount of savings and a good quality of life. And we had purchased a home right when I started pharmacy school. It actually ended up being a really great investment. But that’s kind of the how things went with the student loans.

Tim Ulbrich: And so as you know, as our listeners know, $80,000, while it’s still a lot of money, it’s about a half — a little less actually, than half of what we’re seeing graduates in 2020 come out with on average. And so you mentioned a little bit about some scholarships, but I also heard a lot of intentionality around trying to minimize what you’re able to borrow through work and getting that bill down. But I also heard something that I want to dig in a little bit deeper when you said you’re allergic to debt. And I think that really gets to maybe some of the mindset, which drove the actions to keep that amount as low as you could. So tell me more. Tell our listeners more about what you mean by being allergic to debt and where that comes from.

Austin Ulrich: Yeah. So I think it was kind of engrained in me from childhood because my dad’s a financial advisor. And so he would always teach us these principles about, you know, keeping — staying out of debt and only buying what you can afford. And I guess I never really verbalized that into a financial why until really I started listening to the YFP podcast. But when I verbalized it, you know, I had student loans at the time. So I just, reading the statement here, I have an unquenchable desire to become and live debt-free. And so you know, just I guess as part of my financial why, the reason that I’m allergic to debt and I really want to stay away from it is I feel that being a slave to money is not a good way to live. I want to be in control of my money rather than let my money control me. I think that comes from a Dave Ramsey book somewhere.

Tim Ulbrich: It does. I think he says that often. And I want to prod a little bit more there. When you read your why statement — I’m hearing it for the first time, so I’m guessing our listeners may wonder as well, like when you say a desire to be debt-free or not to be a slave to debt, take us one step further. What does that mean for you specifically in terms of freedom? Is it that those payments that would normally be going to debt could go otherwise? Is it being able to free up money for other types of goals or lifestyle? What does that mean practically? If you don’t have debt, you can do what?

Austin Ulrich: Yeah, so I mean, I have a couple other lines here in my financial why that I had drafted that I think would answer some of those, really providing the basic level. It’s providing a sustainable living for my family where money is not a worry. You know? So I think that’s kind of our basic goal of we’re not drowned in debt, we’re able to do things as a family. We’re able to really provide — I can provide for our basic needs. Some of the other things that come from not having debt and building wealth over time would be I want to take my family on vacations around the world. We love vacationing, and we love trips. And they’re not free usually.

Tim Ulbrich: Right.

Austin Ulrich: So money that’s not going toward debt and paying interest or paying someone else you can use to accomplish your own goals and your own dreams. Some of the other things is owning an investment property or vacation home, you know, giving is a big part of my financial why. And that’s actually been really a core principle from the beginning for us, ever since we started making any sort of money, including throughout pharmacy school, paying off student loans, we always have been giving money. So we give tithing to our church, and that’s been something that’s very important to us, and we feel that we receive blessings from that. So those are just some of my kind of the building blocks of my financial why and really what being debt-free I feel like can allow me to achieve.

Tim Ulbrich: That’s awesome, Austin. I appreciate your willingness to share, and I promise to our listeners, we didn’t have that in the script. I didn’t have that in the notes, but when you had said you had something written down, it was great to be able to prod further and even hear more of what’s behind that. A few things I heard from there as you were talking, you know, beyond the concept of being able to be financially free from a paycheck, giving, diversifying your income through real estate, investing, life experiences with family, being able to care for, provide and support for your family, and so I think all of those are great. And for our listeners, maybe some of those resonate with you, maybe it’s other things. But I think ultimately, taking time to set your vision, set your why for your own personal financial plan can really help month-to-month when it comes to executing certain decisions related to the plan. So Austin, as I understand it, you will have paid off or did pay off $80,000 of student loans over two years of residency. And we before we just talk for a moment about how significant that is considering what we all know is a limited income in residency, I want to go back to one thing you had mentioned is that you were able to be successful in terms of limiting your student loan debt that was accrued, but I assume also in paying that down through making wise decisions. Tell us more about what was the Ulrich playbook when it come to — when it came to minimizing debt and ultimately paying down that debt. What were those things in terms of making wise decisions?

Austin Ulrich: Yeah, so I mean, I would say the linchpin or the key factor in that was really our house purchase. So like I mentioned, in 2014, we decided to buy a house because we knew I’d be in pharmacy school for four years, so we figured that we didn’t want to throw money away to rent for that long and maybe build up some equity. And it actually created a bit of a commute for me — or maybe more than a bit. But I had to drive an hour each way to school for four years.

Tim Ulbrich: So it was pre-Zoom pharmacy school, right, with COVID?

Austin Ulrich: Right. Yeah. So we did have to sacrifice a little bit, you know, as far as commute time. But it was in a place — it was actually in Ogden that we owned a home. It was more affordable, and we had a pretty low house payment. We were able to put some money down on it. And so when it was — when I finished pharmacy school and it was time to move for residency, we actually debated keeping it as a rental property. But when we had looked and, you know, really, we were thinking then, it’s getting close to time for a recession because they seem to be cyclical, but of course, it didn’t happen quite at that point. But in any case, we figured the value had increased so significantly that it would actually b ea good time to just sell the home, so we did make a very decent profit on the sale of the house, probably more so than any other investment we would make in the future. But I guess who knows? But that allowed us to pay off over half of the student loans. So that was definitely a big — the biggest driving factor as far as volume goes to get the cash to pay off the student loans.

Tim Ulbrich: So building up that home equity in that property, being able to sell that, throwing it at the student loans, obviously a big dent. And for our listeners that are hearing that and they’re like, ah, dang it, I don’t have a home with a lot of equity that I can sell and pay off my student loans, so what else was the key to success for you guys in terms of budgeting, working together, keeping expenses down — we’ll talk in a moment about being able to increase some income through a side hustle — what else was sort of the recipe for success as it related to your debt-free journey?

Austin Ulrich: Yeah, so you know, of course my wife and I, we definitely had to be on the same page as far as making these financial decisions. And everything that we’ve done, we’ve done together. And so it’s been a lot of kind of late night discussions and talking through things. And it’s not always easy, but I think that as we work through things, we end up on the same page and we figure it out. So some of the things that we did to keep expenses down during pharmacy school, I think the house purchase was a big one because we actually paid less on our house payment than we did in rent. So you know, there’s some money there. We also — and I know this is not something that’s available to everyone — but we had family nearby as far as childcare. So we had our first child was born the summer before pharmacy school, so we had kids all through pharmacy school. But we had family nearby that we were able to swap babysitting days with and so we actually did not pay $1 in childcare as far as working or school goes to get through pharmacy school. So you know, things like that were pretty significant I think in contributing to helping us keep expenses down.

Tim Ulbrich: What a blessing that is, and I appreciate your comment about you and your wife having to be on the same page. And I know how difficult that can be. I mean, you guys have three young kiddos at home, you’re transitioning from pharmacy school to residency to now obviously even a new opportunity, new location. And it’s hard with three young kids to have any length of conversation, right, without being interrupted. And so sometimes, you’ve got to work hard to piece it together and you’ve got to be persistent, and sometimes it means some late-night conversations, so love to hear that intentionality. I want to talk about your side hustle for a little bit. One, because you know, the YFP community knows, we love a good side hustle for many reasons. I think it helps accelerate the financial goals and the plan, I think it can often help provide a creative outlet and release for something that one is passionate about. And so I think you have a great example with what you have built with your medical writing business, Ulrich Medical Writing LLC. So tell us a little bit about how this came to be, why it came to be, and what the work is that you’re doing right now.

Austin Ulrich: Yeah, this I think is one of the most interesting things I would say I’ve done, really didn’t have a clear path or clear plan. But I would say it really wasn’t about — until about halfway through my PGY1 residency year I was thinking, you know, I know that theoretically at that point, I should be making decent money as a pharmacist, but you know, why not do something to increase my income now? Not that I wasn’t busy enough. But just kind of thinking outside the box. So I mean, I tried a number of things as far as kind of getting a side hustle to generate income. So I’ve tried lots of different things: taking email surveys, transcribing recordings, which I actually didn’t do because my transcribing wasn’t good enough. They paid like $5 an hour, but I couldn’t quite get hired on there. Probably a good thing.

Tim Ulbrich: Oh, wow.

Austin Ulrich: But I did some tutoring on Chegg, some online tutoring, I taught piano lessons. And then I did a bunch of reading about online business.

Tim Ulbrich: OK.

Austin Ulrich: But really, when I happened upon medical writing, I had no idea that it has existed before, and it just felt right with my pharmacy experience. And medical, I guess for those who may not be as familiar, it’s really just writing about any sort of medical topic, and it can any sort of format. These could be blog posts, they could be continuing education modules, slide decks, regulatory documents for pharmaceutical companies, all of that falls under the umbrella of regulatory writing. So really, what I found is that I just needed a little bit of training and a little bit of education to kind of steer my skills in the right direction to be able to provide value in this setting and be able to do some freelance and contracting work in that area.

Tim Ulbrich: And how do you as a new medical writing business, obviously you have the PharmD, you have the clinical training, so that helps in terms of credentials and expertise, but you know, there’s other people in this space. How do you build credibility, how do you build relationships, how do you find clients? What were some of those initial steps that you take and even some of the struggles that you had along the way?

Austin Ulrich: Yeah, so I would say it did take me a long time to get started. So I actually did research for about four months — I guess long time relatively — but I did research and I was building a website in the background, which is nothing fancy, but it kind of does the job. It’s more of a portfolio. But what I would recommend and what worked for me is digging around on AMWA.org, so that’s the American Medical Writers Association. And you basically have any resources that you need about medical writing, they have education there, it’s been a really great community be a part of as I’ve been growing my business. I went to one of their annual meetings last year, and so really doing some networking with people that were also members of AMWA, I read a couple books on medical writing to really just kind of get me started. And then as far as finding clients, there’s the cold email strategy. Sort of like cold calling, but you send them an email and basically when people hear that you’re a pharmacist in the medical writing space, there is a certain understanding that they have that you know about medications and if you’re a writer, you must be able to write about them is the hope. And that reminds me, I did read some books about writing as well too because you do need to know how to write and enjoy it to some extent to be able to do medical writing.

Tim Ulbrich: Sure.

Austin Ulrich: Sometimes you have to grind away, but all of those were pieces that went into building that business to the point where I launched the business and I had a grand total of 0 clients. So then I started my finding process.

Tim Ulbrich: Yeah.

Austin Ulrich: But AMWA, the American Medical Writers Association, actually has a great place to post freelance opportunities, job opportunities. So a number of companies and agencies will post there periodically. So I’ve gotten a few clients that way, I’ve gotten a few clients through just direct emailing. And so just kind of a combination of different approaches has been how I built that up.

Tim Ulbrich: What has the side hustle, what has the medical writing business meant to your financial plan? So how has it either accelerated your goals or perhaps even opened up some new opportunities?

Austin Ulrich: So paying off my student loans within two years of residency would not have been possible without the side hustle. You know, that’s very clear to my wife and I that that was such a big player in that. You know, and though it did mean some early mornings and late nights for me and weekends, it’s not just something you get all of this money for doing nothing. You have to put in the work. So it’s still a trading your time for money type thing. But you know, it’s been really one of the things that I would say I’m the most proud of that I’ve been able to get that moving and actually see some success. You know, the first project that I landed I was almost in disbelief because it’s like, I’ve never done something like this before.

Tim Ulbrich: Yeah.

Austin Ulrich: And you just kind of go with it, and you do your best and make it happen. So that’s what entrepreneurs do.

Tim Ulbrich: Absolutely. And that’s awesome. And kudos to you for taking some risk getting it started. I’ve shared on this podcast before, one of the books that was so instrumental to me in getting started with YFP was “Start” by John Acuff. And I think it’s just such a good resource on the mindset of when somebody has a new idea — and it could be a new business, it could be a new service at your place of work, it could be anything that you’re looking to begin or start, that there can be so many different steps that need to be done and it can be overwhelming, there’s so much to learn. And often you can get lost in that maze of what do I do next? Where do I go? And often, there’s obviously paralysis that prevents that next step. And I think what I took away from that book was you’ve just got to start, right? You’ve got to start. You take a step forward. You do your research, but you move forward. And you may look back in two years and say, “What was I doing with that website or that first step?” But that’s not the point. You know, you’re really getting toward that larger vision and being able to move something forward. So before we transition to talking about your most recent home purchase, Austin, where can folks go to learn more about what you’re doing with your medical writing business?

Austin Ulrich: Yeah, so I think the best place to connect with me would be on LinkedIn. So just Austin Ulrich on LinkedIn. I’ve got my profile set up as a clinical pharmacist and also a freelance medical writer. And then you’ve got my website, and anyone’s welcome to take a look at that. So it’s UlrichMedicalWriting.com.

Tim Ulbrich: Awesome. And we’ll link to both your LinkedIn profile as well as the website in the show notes for those that want to go back. And again, you can go to YourFinancialPharmacist.com/podcast, find this episode, and you’ll see those show notes listed. So you finish up two years of residency in Oregon and you move in across country for a new ambulatory care position. So tell us about this new job, what you’re doing, what you’re working on, and how ultimately you came to find it and how difficult or maybe not it was in terms of navigating that home buying and job position finding during a global pandemic.

Austin Ulrich: Yeah, so I think starting out with the job, you know, of course during the latter half of my PGY2 residency year, I think as all PGY2s are, you’re looking for a full-time position. So I’d been looking and had a number of opportunities and positions available I was applying for. And about that time, COVID hit, you know, early March. So I started to see positions disappearing, you know, I had a few phone interviews. And things just weren’t really moving forward with what I was looking for for positions. But so I guess one thing I would say about this is other than possibly being the worst time in history of the U.S. to get a job, unemployment rates really sky-high, but you know, it impressed to me the importance of going to conferences and networking in person because a lot of the people that I interviewed with, it was all remote, and it was all phone. Maybe I just interview poorly that way, who knows? But the company that I work for is called Upstream. And I had actually met them at ASHP Midyear in December.

Tim Ulbrich: Oh, cool.

Austin Ulrich: So I had met them in person, and it just so happened that I saw a posting that they had a position open. And that was — I think that was in May, early May that they had posted that. So I reached out to the people that I had met and we set up an interview and got a job offer not too long after.

Tim Ulbrich: That’s awesome.

Austin Ulrich: So you know, it’s really interesting how things materialize that way and are just — meeting people in person I think is not to be underestimated.

Tim Ulbrich: Yeah, and I’m so glad you brought forward that networking/professional organization piece. I think from my experience, the benefits of a network and I think really building genuine relationships, I think sometimes networking can imply sort of this cold relationship where you’re using people for connections and other things. And I think so much of networking is genuine relationship-building and doing that continually, making that a part of what you do every day because you genuinely care about people and genuinely care about collaborating and sharing with others. And the fruit of that will come to be and most often will come to be in a time where you may not even expect it. And I think here is a great example. But waiting until that time of need to try to build that network I think is where folks can get in trouble. So not only were you searching for a job in the midst of a global pandemic — and I saw the same thing here with many of the residents that I work with in the Columbus area where job positions were falling off, people were pulling back, trying to conserve resources during this unknown time period. But you also were trying to purchase a home during a global pandemic, which doing that alone from West Coast to East Coast would be difficult enough, let alone trying to do that in the midst of obviously the challenges that were brought forth by COVID-19. So tell us about that experience — and I think the piece, Austin, I’m curious to hear from you knowing this isn’t your first time going through the home buying experience, was there anything that you learned from that first time that you applied and did differently when you bought this home here in 2020?

Austin Ulrich: Yeah, so I think the thing that was most important for us is we wanted to actually see the property before buying. It was really important for us to get into the right area or a good area for our family. But on the other hand, how do you know what is the right area when you’ve never been somewhere? We hadn’t even been to North Carolina before. And I guess to contrast that with our home buying experience in Utah, we knew the area very well that we wanted to live, and we actually ended up finding our house on it may have been Zillow or some sort of real estate network. But we basically found our house and called whatever realtor was listed on there. It was probably an easy job for them, but you know — so that was definitely differences. We didn’t really know where we wanted to be, and we’d had some not-so-good experiences with that realtor and also our realtor selling the house. So one of the important things for us was to get a realtor that would actually do a good job for us because we knew that they’d need to be — we were going to take a trip out and we had three days to find a house and make an offer. And so that realtor needed to be available and needed to do a good job, so you know, we asked for recommendations and one of the people I work with had mentioned someone that they used that was an awesome realtor. And so we went with her, and she put in a lot of hours those three days when we were out there, and we did too. But having a good realtor was really important to us, and of course having all the financing lined up is an important piece of that as well so that you’re ready to act because what we found is there were actually three or four houses we were considering offering on, and they were gone.

Tim Ulbrich: Yes.

Austin Ulrich: About the time — I mean, within one day. We looked at it in the morning and by the evening, it was gone. So part of that was getting our offer in fast enough before the house we’re in was gone. I would say those are some of the things that we kind of carried over from our previous experience but really different experience for us because we just didn’t know anything about the area. But I think by the end, we had a pretty strong feeling of where we needed to be.

Tim Ulbrich: And I’m glad you mentioned those two things, Austin, as I think of Jess and I and our transition buying a home for the second time here in Columbus, those two things really stand out to me as well. Having your financing in order and having a good realtor on your team and how important they are. And I think they can certainly make all the different, especially when you’re dealing with a situation such as what you guys are doing, moving across country but also in a market where things are moving quickly and properties are coming off the market quickly and needing to be ready to act. So you’re in North Carolina, you’ve gone through a lot of transition in the last four or five years, obviously you’ve made incredible progress, you’ve got a young family, lots of competing priorities for your finances, so how are you feeling in this moment about your overall financial health? And talk to us a little bit about some of your financial goals going forward.

Austin Ulrich: Yeah, so I think about my goals fairly often now, I think since crafting my why, which has been really helpful of having things that I’m looking to achieve. But of course our big goal is to buy a house, that was something that’s important for our family. And I know that may not be part of everyone’s financial plan, but that was something that was important to us is to build the equity and maybe it was due to our really good experience with our first house, but I think in general, we don’t like the idea of throwing money down the drain to interest. But you know, in any case, our next steps for financial goals really are to make sure our savings is solidified. We were able to get some what we feel like is pretty favorable financing where we didn’t have to completely destroy our savings and emergency fund to purchase the home. And so just building that back up is going to be the first step and then looking to kind of flex up our investments and then eventually down the road, I think we want to get into real estate investing. But I think we’ve got kind of more to learn and more capital to acquire probably before stepping into that of what we’re thinking that we want to do there.

Tim Ulbrich: Yeah, and you’ve put yourself in a great position to have that as an option going forward. And so I’m excited to see what the future looks like for you and your wife. And as I listen to your financial journey, I know — it sounds like it, certainly — that your intentionality with your finances during school and residency has really set you up for a lot of success in the future. And I think really sharing your story, I’m hopeful students listening are inspired by this, those that are in the midst of residency and feeling how daunting that can feel in terms of both the intensity on your time as well as the strain on your resources as well as those that are making the transition and looking to build that solid foundation, I think there’s a lot of wisdom that you shared throughout this episode, so Austin, my question for you here is what advice would you have for, you know, students that are listening to this episode saying, ‘I’m going to put myself on the path that Austin has taken where a couple years out, I can be on solid financial footing and really be looking toward the future to optimize the plan.’ What would you have for students and some actions that they can take in the moment?

Austin Ulrich: Yeah, so I think honestly, one of the biggest things I would recommend is remember to enjoy the journey because it can be easy to think, oh, after I graduate, after my student loans are paid off, after this, after this, once I have enough money, then I’ll be happy, then I’ll enjoy life. And I think that’s a little bit of a trap that people can get into because in some of the way, it’s really about the journey, those nights being up with the kids three or four times and getting up at 5 a.m. to go to school, those are times to look back on and now those are great times and we’ve got a lot of great times ahead of us. So I think that’s probably my No. 1 piece of advice that I would give as far as an overall standpoint is keep that in mind as you’re looking to accomplish your own goals and meet your own financial why. But I think one of the most important things for me was for sure working during pharmacy school. I was a pharmacy student, I personally recommend that to everyone. Just the opportunity to implement the knowledge you’re getting in pharmacy school, it makes you a better student and you get paid for it, so it puts you in a better financial position. So I mean, I don’t think that anyone should overstress themself by getting a job, but it’s certainly something I recommend. That would be one of my biggest other pieces of advice as far as the finances go.

Tim Ulbrich: Great stuff. And we know the YFP community is hungry to learn more in addition to what they’re hearing on the podcast, so do you have a favorite book, podcast or other resource that you have found to be instrumental in your own life as it relates to your finances?

Austin Ulrich: Yeah, so I was thinking about this and, you know, I think a lot of the books that you mention here on the podcast are ones that I’ve read, a lot of them actually at recommendations I’ve heard on YFP. But as far as podcasts go, I think some of the things that I learned as far as my side hustle, which was a very important piece of the financial plan and still is, there are a couple of business podcasts or entrepreneurship podcasts that kind of, they get you motivated really well. And I haven’t listened to those in awhile, but Entrepreneurs on Fire by John Lee Dumas and then School of Greatness as well, Louis Howe is that one. So those are some great kind of — they have some key episodes that are good kind of pop-up entrepreneurship and get you in the mindset to go and take some action, like you said, and just do something to start moving forward and then let that momentum build.

Tim Ulbrich: Great recommendations, Austin. And I appreciate you taking time out of your busy schedule with all that you have been going on with the move and the new job to share your financial journey. It’s been an inspiration to me. I’m confident it will be the same to our community and certainly appreciate your contribution to the show. And to the YFP community, if you liked what you heard on this week’s episode, please do us a favor and leave a rating and review on Apple podcasts or wherever you listen to the show each and every week. And if you haven’t yet done so, I hope you’ll join us in the Your Financial Pharmacist Facebook group, over 6,000 pharmacy professionals all across the country committed to helping one another on their individual path towards achieving financial freedom. Have a great rest of your week.

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YFP 170: The Ins and Outs of Auto Insurance

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The Ins and Outs of Auto Insurance

Robert Lopez, YFP’s Lead Financial Planner, joins Tim Ulbrich to talk about the ins and outs of car insurance. Robert digs into why it’s an important part of the financial plan, key terminology, how rates are calculated, the make-up of an auto insurance policy and common mistakes to avoid when purchasing car insurance.

Summary

Robert Lopez, Lead Financial Planner at YFP, shares that car insurance is an important part of someone’s financial plan for two reasons: it has to be paid monthly, semi-annually or annually and if you do get into an accident, it can be a large expense that affects the rest of your plan especially if you aren’t prepared for it.

Robert talks through the main pieces of a car insurance policy like bodily injury liability, property injury liability, medical payments or personal injury protection, collision, comprehensive, uninsured/underinsured motorist coverage and extras like roadside assistance and rental car reimbursement. He also explains that car insurance rates are determined depending on the address/city the insurer lives in as well as their driving record, credit, past claims, vehicle, daily commute or annual mileage and age.

It can be difficult to determine what you need or what coverage you should leave out when choosing a plan. Robert says that it really depends on your specific situation, what state you live in and if you have a new car. Personally, Robert likes having roadside assistance, rental reimbursement and windshield replacement coverage, but those extras may not be necessary for someone else. He also says that it depends on your financial situation and what you can pay now as well as what you can pay if or when an accident occurs.

Tim and Robert also discuss how to choose an insurance company and common mistakes that he sees others make.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Robert, excited to have you back on the show. How are things going out in Phoenix?

Robert Lopez: You know, it’s hot. So there’s always that to worry about. I think it’s going to be cool today. It should only be 102, so we’re doing better.

Tim Ulbrich: Gees. We’re starting here in Ohio, we’re getting the beginnings of fall weather, doesn’t feel like a normal fall, though. We don’t have of course normal football season here in the Buckeye State, but nonetheless, we’re starting to transition to some of the most beautiful weather here. So 102, that’s pretty intense. But today we’re talking about something that I think is an often overlooked part of the financial plan, and we’re going to get your perspective as it relates to working with clients and looking at this piece of the puzzle. And as we talk about all the time, the financial plan is a giant puzzle. This is one piece, albeit an important piece of the puzzle. And I know that car insurance premiums, you know, they’re not the most expensive bill necessarily, but we’re going to talk about the importance of having the right insurance protection in place as it does with other insurance policies can affect the rest of your financial plan in big ways. So Robert, let’s start with what impact does car insurance have on the financial plan? And why is it important for people to really understand their auto insurance coverage?

Robert Lopez: Yeah, so auto insurance is really important to the financial plan for two reasons. One, you have your monthly or your semiannually premiums you’re going to be paying. And then if you are in an accident or an incident, those are large expenses that we may or may not be prepared for. I myself just had my car totaled a few weeks ago, and that was a rather large bill that I would not prefer to pay on my own. So insurance is there to protect you from some of those unforeseen expenses.

Tim Ulbrich: Yeah, and whether that be an emergency fund or if somebody doesn’t have an emergency fund, having to go into debt to cover those, obviously as we talk about with life or disability, there’s the protection part of the financial plan or most recently we talked about professional liability on the show. The other area I think about here, Robert, I’d like your input and perhaps something you see often with clients, whether it’s auto insurance, home insurance, disability or life, is that some people may be underinsured, which of course is what you just referenced, or perhaps overinsured, right, which could affect not only what’s coming out of pocket but perhaps also the opportunity cost of where that money could be used elsewhere in the financial plan.

Robert Lopez: It’s a problem both ways, but overinsured is definitely a thing. A lot of times we’ll hear clients say they just want to make sure, they want to be positive that they have enough coverage, but they’re really doing a disservice to themselves by being overinsured because as you mentioned, that opportunity cost. Those funds could go to another place, right? Maybe we want to expand our emergency fund and those extra premiums could be going towards that. Maybe we’d rather be paying down debt with that extra money. So rather than protecting ourselves from an unknown future, we could actually be paying something down today. We try to find that balance between having enough coverage and having too much coverage.

Tim Ulbrich: So let’s jump into some basic terminology before we talk about how rates are calculated, before we talk about what makes up a policy and some common mistakes that we see when folks are purchasing it. So basic definitions: premium, deductible, what’s the difference between the two as it relates to car insurance?

Robert Lopez: So your premium is that expense that you get every set time period. So it’s a monthly payment, it can be semiannual, it may be annual. But it’s the expense you pay just to maintain your coverage. The deductible is the amount that you’re required to pay after an incident or accident prior to the insurance kicking in. So think of that as your skin in the game. So they want to make sure that you’re covering part of an incident so you’re not overcharging them for the policy.

Tim Ulbrich: And as many of our listeners know, of course being in the healthcare field, this terminology they’re familiar with and not only for their own personal plans but obviously in working with their patients. But we’ll talk about that in more detail in terms of obviously how a high or a low deductible plan may impact your premiums. And as you’re shopping around, making sure you’re really trying to do as much as possible of an apples-to-apples comparison. So Robert, talk to us about how car insurance rates are calculated and what’s really taken into account in consideration when calculating those rates.

Robert Lopez: So insurance companies are really good at math. And they can find out exactly what proportion of the population is going to need to have benefits paid out. So they try to take everything into consideration they can, right? So this is going to come down to your address, meaning what area of the country you’re in and what area of a city you may be in. They’re going to look at your specific driving record, have you had incidents in the past. They may look at your credit, except where state laws maybe ban that, but viewing your credit would also kind of show a dependability. They’re going to look at past claims, like are you the squeaky wheel that keeps making claims? They’re going to look at your vehicle, and the vehicle maybe if it’s an expensive vehicle where maintenance would be higher or a faulty vehicle that may have more issues. They’re going to look at your daily commute or your annual mileage that you have, so how much are you driving to and from work because that’s the time period where you’re most likely to get into an incident or an accident. And then what’s your age? Some auto insurance agencies have a set age where they say you’re now an adult. And it may not be 18. You may hear numbers like 25, you may hear numbers like 26. But they’re going to say younger people are mathematically more likely to have accidents and claims.

Tim Ulbrich: And let’s jump into the components, the parts, of a car insurance policy as I think this is going to help our listeners not only evaluate their own policies but as they’re perhaps comparing different quotes or looking at maybe changing insurance policies, really understanding what is or is not required — and we’ll talk about obviously state laws that are impacting that — but also as you’re comparing one policy to another, understanding what is or is not included within those policies. So Robert, give us the key components of a car insurance policy and just fire them off. And then we’ll spend some time talking through those in more detail.

Robert Lopez: Yeah, so the main types of coverages you’re going to see are bodily injury liability; property damage liability; medical payments or medpay, also known as personal injury protection; collision; comprehensive; uninsured or underinsured motorist coverage; and then there’s a bunch of extras out there like roadside assistance, gap insurance, rental reimbursement, really anything that your heart desires.

Tim Ulbrich: Let’s go through those in more detail. Bodily injury liability, talk to us about that one.

Robert Lopez: So bodily injury liability is designed to pay for the medical bills and lost wages when an accident is your fault. So when you cause an accident, you run the stop sign, you run the red light, you hit the other car, this pays for their medical bills and any lost wages.

Tim Ulbrich: And one of the things — I’m deviating here a little bit, Robert — but just thinking about from planning standpoint, if I’m somebody who caused the accident, it was deemed to be my fault, what I’m thinking about is the spectrum of healthcare costs that could be incurred, right? It could be as small as an urgent care visit or a brief hospital stay or as significant as somebody who needs to be life flighted for a more serious injury. So in your experience and what you have viewed in these policies, how do you begin to evaluate obviously the range of how catastrophic it could be but also then what those policies may or may not cover and then what additional coverage you may need to be able to protect other parts of your financial plan. I’m thinking in the event of something like a lawsuit.

Robert Lopez: Yeah, that’s actually a really good question. So when you work with an insurance agent, they should be able to help you figure out some of those limits. They could be as low as what we call 25-50. Meaning it could pay up to $25,000 per person involved in an incident and $50,000 overall. Generally, we’ll recommend 100-300, meaning $100,000 per person, $300,000 per incident. It can go all the way up to 300-300 or 350-500. And that’s going to be really dependent on your area, the kind of people that you’re going to be surrounding yourselves with, and your own net worth. And that’s kind of what we’re protecting there, right? So if you find yourself driving around near a bunch of surgeons in a very high income area, then maybe your liability protection should be higher. Obviously if a surgeon has to take off a year to recover from injury, those lost wages are going to be a little above those limits. And this may be the place where a umbrella could come into effect above and beyond this liability coverage to protect from those larger lawsuits.

Tim Ulbrich: For those that aren’t as familiar with the concept of an umbrella policy, briefly define that for us.

Robert Lopez: Yeah. So an umbrella policy is just a pure liability policy, protection that goes above — like an umbrella — above any of your other liability suits. So let’s say you have an accident or an incident where someone is suing you for $500,000 of liability, your car insurance would go up to its maximum, so if it’s 100-300, it would cover that $100,000 per person. And then the umbrella policy would cover you above and beyond that. Those are generally sold in $1 million increments. They’re generally pretty fairly priced, similar to HPSOs, professional liability policies, so it should cost about $100-120 a year.

Tim Ulbrich: Awesome. OK. So bodily injury liability is the first main type of coverage. What about property damage liability?

Robert Lopez: Property damage liability pays to repair or replace property that you destroy with your car. So let’s say you get into an accident, and you hit other cars or a fence, you slide into a gate and it has to be replaced, that would cover that. So that normally is going to look like $50,000 is the kind of going rate that you’ll see for that.

Tim Ulbrich: OK, and the third one you mentioned was medical payments, referred to or abbreviated as med pay or personal injury protection.

Robert Lopez: Yeah. So personal injury protection pays for the medical expenses suffered by you and any passengers within your vehicle. So this doesn’t matter who’s at fault for the incident; your coverage will protect you and yours. If the incident is proven to be the other driver’s fault, you could go for them to seek damages, but this protection is specifically designed to protect you and yours.

Tim Ulbrich: OK. And what about collision?

Robert Lopez: Collision coverage pays to repair your own vehicle in the event of an accident. The collision claim check is generally going to be reduced by your collision deductible. So that’ll be specific to your policy. But this is just to repair your car in the event of an accident.

Tim Ulbrich: And comprehensive?

Robert Lopez: Comprehensive goes beyond accidents, right? So if your car is damaged in an accident, it’s collision coverage. If it’s damaged outside of an accident, so think if there’s a theft, fire, vandalism, storm damage, hail damage, collision with an animal, hitting a deer on the side of the road kind of thing, all that would be considered comprehensive coverage. So that would pay if your car needs repairs in that instance.

Tim Ulbrich: And uninsured or underinsured motorist coverage?

Robert Lopez: If you hit another driver or another driver hits you and they don’t have the proper insurance in place, this would protect you from that. So normally, the other insured individual would pay for the damages if the incident is their fault. If they are uninsured or underinsured, this covers you. So this is not required in most states, but it’s highly recommended since the insurance rate in America is not at the 100% that we’d like to see.

Tim Ulbrich: And my favorite category, the last one here, the catchall of extras like roadside assistance.

Robert Lopez: Yeah. So in extras, you’ll see a lot of different things. So roadside assistance is one of them. So that pays for fees due to a vehicle breakdown. So let’s say you run out of gas on the side of the road or you need a tow truck to come pick you up, this would be included in your insurance, so you would not have to pay those fees. Other options are rental reimbursement, so I mentioned my car was totaled recently. My rental reimbursement paid me to have a rental car while my car was being inspected and see if they were going to replace it or repair it. So it’s generally just up to whatever level you decide. So if you have economy, then it will pay for an economy car. If you have a specialty convertible, then it’ll pay for that. And then gap insurance is one I want to definitely make sure we touch on.

Tim Ulbrich: Yeah.

Robert Lopez: Gap insurance pays for the gap between what you owe on your car and what a car is worth. So let’s say I have a brand new car, it cost $25,000. I have a loan for $20,000 still. I get into an accident, my car is totaled. But the value of that car is only $14,000 just because of the depreciation as soon as you drive off the lot. So gap insurance would cover that difference. It was a $20,000 loan, $14,000 car, it covers the $6,000 difference there so I’m not in the hole for a car that is no longer able to be driven.

Tim Ulbrich: Yeah, really important, especially as we’ve talked about before on the show, thinking about how cars depreciate in value. Many people are likely in a scenario where they may owe more on the vehicle than the car is worth. So Robert, as I hear these things, bodily injury liability, property damage, medical payments, collision, comprehensive, uninsured or underinsured, extras, gap coverage, I understand. You did a great job of explaining them. My thought is what do I need? And what do I not need? And how do you know what coverage you need to have? Does it depend on the state? What is you’re leasing or buying? What if it’s a new car versus a beater you’re driving around? How do you think about this and advise clients as it relates to their own insurance policies?

Robert Lopez: Yeah, I’ll go back to Tim Baker’s favorite response: It depends. So it really comes down to what your specific situation says. So some states only require you to carry liability coverage, meaning you wouldn’t require any kind of collision, comprehensive, or any kind of things like that. You would only need coverage for if you were at fault. That’s not recommended for most newer cars because you’re going to want to get your car replaced and repaired. So if you have a new car with a loan, the loan company or the bank will generally require you to have full, comprehensive coverage, meaning they want to make sure the car will be replaced because they’re using that car as collateral against the loan. So they want to make sure that it maintains its value. So it’s really going to come down to your personal preference. I like having rental reimbursement and roadside assistance on my car. They’re not necessary. I like adding windshield replacement because in Arizona, we just catch rocks for fun with our windshields, so I like to have that policy built in there. Beyond that, it’s really going to come into your personal financial situation and what you can afford to pay now and what you could possibly afford in the event of an incident or accident.

Tim Ulbrich: Yeah, great point. And I think for those listening, my encouragement would be as you understand the individual components of the policy and then evaluate your own plan, your own vehicle situation. So as you mentioned, somebody’s driving around in a new car, somebody’s driving around a vehicle with 150,000 miles on it that’s worth $4,000 or $5,000, they may approach this very differently in terms of what they’re looking for things to get replaced or covered in the event of an accident and how their personal financial situation may be able to cover some of those costs that come or perhaps it may not. And they may need that coverage, but really understanding the individual components, understanding your situation, and then as you begin to shop around, once you determine the need, really being able to look at Policy A versus Policy B versus Policy C based on those individual coverage maximum limits and what you need or don’t need for your own situation. Now that we know what makes up a car insurance policy and the basics of what that policy covers, let’s talk a little bit about car insurance companies, really between brick-and-mortar and online companies, I guess not much brick-and-mortar these days. You know, people walking into talk with an agent. We’ve got big insurers, we’ve got small insurers. I feel like there’s so many options, and I’m even thinking about watching an NBA game recently where I felt like every third or fourth commercial was a company who’s shopping around. There’s lots of them out there, and I think it can be confusing about where do I go? What should I be looking for? How should I be evaluating it? So how do you begin to decide which car insurance company is going to suit your needs best? And what are the main things that our listeners should be thinking through when choosing a car insurance company?

Robert Lopez: Yeah, I think a lot of it’s going to come down to kind of four main areas. First of all, location. Not all of these companies are going to be operating in every area. There are other things to worry about, there are price. Right? So price is going to be huge because there’s going to be drastic differences in cost. So we want to make sure that we compare and shop around on prices to all of the agencies. Another one would be trust or reliability. There’s online organizations, Bank Rate does it, there’s a ton of organizations that will rank insurance companies based on financial strength, basically their stability, and then by claim satisfaction score. You can look online and say, hey, this company is extremely financially stable, it’s not going to disappear overnight like one of these odd commercials that we see on TV, and I know that their claim satisfaction score is high. So people who are actually filing claims are happy with the service they receive. And then the last thing is going to be comfort level. Are you already familiar with a company and do you like them? Are you already familiar with the bank that provides that service as well? Is there already policies that you’ve had in the past you’ve had success with their claims departments? Sometimes it’s worth a little extra to work with somebody that you’re comfortable with, whether it’s the bank or the agent themself.

Tim Ulbrich: So Robert, to that point, and one of the things I often struggle with is — I’m even thinking about right now my own auto and home policies and recently shopped those around to get new updated rates and bundled options and all that good stuff. You can shop around ‘til you’re blue in the face and find a better price, and you mentioned some things that are really important to consider, not just price alone. But the one that stands out to me is that customer service, comfortability with the individual carrier as well as perhaps an individual relationship or contact you have. So I know for my personal auto insurance, I have somebody that for 5+ years now, quick email, quick response, I have that personal connection, and that is worth something as I look at sure, I could get a cheaper option, but how much cheaper does that need to be to be able to outweigh that? So how do you evaluate this personally, whether it be on the auto side or another type of insurance, really the importance of that relationship, the importance of the customer service relative to the price of the policy?

Robert Lopez: Personally, I like simplicity. I like to get all my policies in one place if possible so I just have one contact. And I like to deal with one organization. I’m lucky enough to be a prior military member, so I can use USAA as my bank, I can use my USAA as my insurance policy company, I can USAA as a lot of things. So that’s what I personally like. I know that I’m probably paying a premium, and I do check that every year, meaning I know the comparison rates of what I would be paying elsewhere so if at one point, it turns out to not be the right mathematical choice anymore, I can make that switch. But I know that I’m paying extra just to keep that simplicity, the consistency.

Tim Ulbrich: Yeah, and this would be something that I would recommend folks, you know, put this probably among some other things that once a year is on the calendar just to look at again. We all know how fast a year can go, you’ve got competing responsibilities and priorities, and I have found even with my own carrier, asking the question sometimes, ‘Oh, I’m glad you asked, we’ve got these different options.’ Or, ‘Hey, I’m looking at these other options,’ and all of a sudden there’s new quotes that are presented. So I think once a year is good due diligence probably among other areas of the plan as you’re looking at credit reports or other things as well to make sure you’re taking care of those maintenance items as it relates to the financial plan. Like any aspect of the financial plan, Robert, it’s easy to make mistakes along the way. What are some of the common mistakes that you see people making when it comes to car insurance? And I’ll probably add on a couple that I’ve made myself as well.

Robert Lopez: Yeah, you’ll definitely hear me repeating myself from some of the stuff I already said. But some of the big ones, again, not shopping around. Just sticking with that one organization is not enough. And when we do shop around, we want to make sure we get that full picture of the marketplace. There’s a bunch of insurance companies, they change their names from time to time, but they’re still there. So you want to definitely check annually and make sure we’re comparing apples to apples. You can actually give your policy information to another agent and let them compare it and say, “I want this exact same policy from your company. What would it cost?” And they should be able to do that pretty easily. The next one is carrying too much or too little insurance. Carrying too much coverage, as we talked about earlier, being overinsured, it’s just going to increase your premiums and cost you more long term. And then not having enough coverage will lead to those larger expenses in the event of an incident. So we want to try to find that right balance between how much premium we want to pay, how much deductible we want to pay, and how much actual coverage we want to have. Some other ones, kind of buying roadside service can sometimes be a mistake. So I mentioned that I like to have that on my policy, but that’s because I don’t receive that service from any other organizations. Sometimes you can get it through a credit card company, if you have anything like AAA or if you have a vehicle warranty, a lot of times those are built in. So we want to just confirm one way or the other if we already have this service or not and then if we want to include it in our insurance policy or not. The next common mistake I see is people not updating their service, their policies, so carrying collision coverage on an older car is not necessarily the right thing. So remember, collision coverage protects your car in the case of an incident. If you have an older car that’s not very valuable, then that coverage is not going to pay out as much as it used to. So you’re likely overpaying for that part of the policy. In that same breath, just generally not updating your policy to reflect your life changes is a big one. So keeping insurance up-to-date on your situation is really going to ensure that you’re receiving the correct rates. We have a lot of people who are working from home right now, so they’re driving less. So their policy should be lower cost to reflect that because they’re less likely to get into an incident if they’re not driving to work every day. Not getting that premium versus deductible balance right, so increasing your deductible is a great way to lower your premiums, but you need to make sure that you’re able to actually afford that deductible when the time comes. Just trying to get your premium as low as possible and having a $4,000 or $5,000 deductible in the future sounds great until the future gets here, and now you’re going into credit card debt to pay that deductible. And then the last one that I see is kind of getting those gimmicks in car plans. So insurance companies are all over the place, and they’re all trying to stand out. So they’ll offer different incentives or options, think accident forgiveness, and really what this does is it sounds great until you review the numbers. So we just want to make sure that we understand exactly how these programs work and we’re happy with whatever added expense they bring to us for the benefit that they state.

Tim Ulbrich: Great stuff, Robert. And I’m going to just emphasize or re-emphasize a few of those that I’ve lived firsthand. So you mentioned the buying roadside coverage, and I know again, something you mentioned you like, and I think your follow-up there was spot-on, really making sure you’re not paying for it anywhere else. So probably the most common thing that I see and I experienced myself was people not realizing that they already have AAA or another policy coverage in place and then they’re also paying for it on the auto insurance, so making sure you’re not double paying. You know, the apples to apples is so important. And I love your recommendation of actually sending your policy, sending what you are currently have in terms of coverage and limits and then asking to get a quote that will match that or if you’re looking for more or less in a certain area so you can really compare one to another in terms of an apples to apples. And then I think overpaying, you know, is something that I fall victim to myself. You know, I’ve talked about on the show before, most recently when Tim Church and I talked about the pros and cons of paying cash for a car, but we don’t drive the nicest cars in the Ulbrich household, let’s just leave it at that. There’s certain coverages that we don’t need, and if there’s an emergency fund and other areas that can cover it, then we’re trying to find that balance that you reference in terms of the premium versus the deductible. So Robert, appreciate your time coming on, and as I started the show, I’ll end the show by saying our goal as we continue to talk about different parts the financial plan is to re-emphasize that the financial plan is complicated. There’s many pieces, there’s many parts, and here we’re talking about just a sliver but an important part. And if you don’t have the right coverage, you’re exposing the rest of your financial plan. If you’ve got too much coverage, perhaps there’s an opportunity cost where you could be better allocating those monies to a different part of the financial plan. So we do comprehensive financial planning at Your Financial Pharmacist, specifically customized for pharmacy professionals. And we define comprehensive financial planning as anything that has a dollar sign on it, we want to be involved in that part of the financial plan. So that ranges from debt management, that includes investing and retirement, that includes insurance here, just one part of insurance we’re talking about today, credit, credit management, home buying, the list goes on and on as we know that all parts of the financial plan impact one another. And so if you’re interested in learning more about our comprehensive, fee-only financial planning services, head on over to YFPPlanning.com, where you can schedule a free discovery call to see if that service is a good fit for you. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating and review on Apple podcasts or wherever you listen to the show each and every week. And I hope you’ll join us in the Your Financial Pharmacist Facebook group, where we now have more than 6,000 pharmacy professionals active and committed to helping one another on their path towards achieving financial freedom. Have a great rest of your week.

 

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YFP 169: Helpful Tips for Getting a Mortgage

Posted on by yfpadmin


Helpful Tips for Getting a Mortgage

Tony Umholtz, a Mortgage Manager at IBERIABANK/First Horizon shares helpful tips for getting a mortgage and what you need to know when financing a home purchase or refinancing your home. Tony also breaks down the difference between pre-approval and pre-qualification, how interest rates are calculated, different types of home loans and everything you need to know about escrow accounts.

About Today’s Guest

Tony graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine and Mortgage Originator magazine.

Summary

Tony Umholtz, a Mortgage Manager at IBERIABANK/First Horizon joins Tim Ulbrich on this week’s episode to dig into a huge piece of the home buying or refinancing process: financing. He breaks down several key components of financing such as the differences between pre-approvals and pre-qualifications, loan types and how interest rates are calculated.

Tony recommends that someone begins talking to a lender before they begin looking for a house so that they can learn about different loan products and get a pre-approval letter. A pre-approval letter is needed from the lender when you make an offer on a home. It communicates to the seller that you are able to finance a home and that your credit has been checked. If you’re not quite ready to shop for homes, Tony mentions that a pre-qualification can be run as a cursory overview of someone’s income and debt. A pre-qualification doesn’t pull credit, however it does use your debt to income ratio and could be helpful in the beginning stages of the process.

Tony talks through different types of loan products including conventional, FHA, VA and jumbo loans. Regardless of the loan product you chose, your mortgage will have an interest rate. That interest rate fluctuates based on many factors, like the market itself, individual factors such as credit score and the type of property (single family vs condominium).

IBERIABANK/First Horizon offers a loan option for pharmacists called the Pharmacist Home Loan (aka the Doctor’s Home Loan). This loan allows you to buy a home for 3% down if you’re a first-time homebuyer (5% down for subsequent homes) and pay no mortgage insurance. Full disclaimer: this is not the case for every homebuyer. There are certain restrictions to qualify (maximum loan amount and minimum credit scores) and certain property types where the down payment rates can differ.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Tony, welcome back to the show.

Tony Umholtz: Tim, thanks for having me.

Tim Ulbrich: It’s almost like you’re a regular now, number three that we’re doing this. So glad to have you back. How are things going down in Florida?

Tony Umholtz: You know, we’re doing great down here. And Tim, always good to be here with you. And you know, it’s hot and humid down here in Florida.

Tim Ulbrich: We are finally on the tail end of that heat here in Ohio. I feel like we’re getting the beginnings of some fall weather, which I’m biased, of course, but some of the best weather I think in the country comes in September and October in Ohio. So excited for that time of weather here and just enjoying that with the family. So Tony, before we jump into I think what’s going to be a great discussion on helpful tips for those that are going through the financing part of the process, looking at obtaining a mortgage, I don’t want to make an assumptions that our listeners heard both of our previous episodes that you were in, so give us a little bit of background on you and the work that you do at IBERIABANK/First Horizon

Tony Umholtz: Yeah, sure, Tim. I’ve been with IBERIABANK/First Horizon now, gosh, two and a half, almost three years with IBERIABANK/First Horizon and I run a team that handles mortgage originations for purchase transactions, refinances, across the country. We can handle most states, 48 states. And I’ve been in the industry now almost 20 years — I can’t believe I’m saying that, Tim. But I’m aging myself — nearly 20 years. And my background, of course, through college was finance. I was a finance major and did an MBA as well. But I’ve just really enjoyed helping people, helping families, with the home buying process. I have several kids. I have three children. I have a daughter who’s about to turn 12, I have a 10-year-old, and we recently adopted a 2-year-old girl last fall.

Tim Ulbrich: Always appreciate having you on, sharing your expertise, I know a topic that is of interest to so many of our listeners that may be in a first time home buying position, might be moving, might be in a refinance situation, especially given the market and the landscape of what we have. And we had you on, as I alluded to, Episode 136, Ins and Outs of a Pharmacists Home Loan, and Episode 154, Getting a Home Loan in a Pandemic, so I’d reference our listeners to those two episodes for more information. But today, we’re getting a bit more specific in the home buying to talk about mortgages and to learn tips really when navigating the financing part of the process when it comes to home buying and refinance. And just for some background, the nature of how we came to this idea for an episode is I was reflecting, you know, having gone through the home buying process twice and having gone through the refinance process twice, most recently just a couple months ago here with our home in Columbus, which I’ve talked about on a previous episode, honestly, I feel like I still have a pretty elementary level understanding of everything that is involved with the lending process, and I feel like each time I have gone through that, I’ve learned something new. And so just like we do with much of our content on the Your Financial Pharmacist podcast, I feel like any education we can share with pharmacists so that they’re better prepared as they’re going through it, hopefully the better. You know, we believe firmly that the more educated you feel, the more empowered you are in the process, the more involved you are in the process, the better the outcome is. So that’s really the nature and the background for this week’s episode. So Tony, I want to in a moment start jumping into some terminology that I think often folks may get hung up on or wondering about, but my first question for you, as somebody who is perhaps listening looking for their first home, so going through the home buying process the very first time, when do you typically recommend somebody begins engaging in a conversation with the lender? As they’re out perhaps looking at homes or looking at Zillow or Redfin or wherever, when do you want to get the lending piece of the process moving forward?

Tony Umholtz: Tim, great question. I always believe that you want to get the dialogue with the lender going immediately, even before you’re out there looking at homes. I mean, it’s OK to be looking around on Zillow or Realtor.com a little bit, but before you start entering into homes, a majority of realtors out there are going to want to before they show you a house, a listing agent will allow you into the house, they’re going to want to know you’re pre-approved. And I always find knowledge is power. You know, knowledge is power. Knowing what you can and can’t do as far as affordability is critical. And you might be surprised, with the rates where they are today, you may be able to afford more home than you realized. But I would always engage with a lender first. I think that that’s a critical first step.

Tim Ulbrich: I’m glad you said that, Tony, because the other thing that jumps out to me here, as we’ve talked about before on previous episodes that you and I have discussed on the show is really the importance of you as the individual setting your home buying budget and really understanding how this fits into your monthly cash flow as you’re looking at all of the other goals when it comes to your financial plan. So you know, as you begin to get serious of looking at homes and you’re starting to obviously get excited about the process, I know through firsthand experience, the budget can quickly go out the window as you start looking at homes, or at least that can be challenged. And so having a good pulse on that and really understanding what would that loan look like and talking to the lender, what might that mean from a down payment, from rates, from month-to-month payment I think can really help understand and set expectations as you’re going into the actual process of evaluating homes and hopefully getting excited about what lies ahead. Tony, you mentioned pre-approval, and that was one of the questions I had for you is I know the terms pre-approval, pre-qualification, often get thrown around. Talk to us about the difference of those terms and why that’s important to lenders.

Tony Umholtz: Sure, sure. So the pre-qualification is actually — a lender will just do a cursory overview of your income and then your stated debts. So typically, a client will say, “I don’t want my credit pulled at this time, but I’d like to know what I can afford.” The risk here is we don’t — when we run your credit report, we know your actual score, we know exactly what those debts are. But we get an estimated amount or what you’re paying on it, and then we take usually a pay stub or a client will give us a tax return, and we can see what their earnings are and we can run what’s called a debt-to-income ratio. And if it meets that property, in that loan on the property, it meets the debt-to-income ratio, you can get a qualification. And a pre-approval is really just a little deeper dive. We actually run credit and then we review a pay stub or a tax return if you’re self-employed. So it’s really the difference between the two is the credit report is added on the pre-approval.

Tim Ulbrich: OK, Tony, so we have the difference then there between the pre-qualification and the pre-approval, so my natural question then as I’m thinking about this from the view of somebody that may be in the buying process is which is better? And does that matter in the process?

Tony Umholtz: Well, you know, typically most real estate professionals, realtors, are going to want a pre-approval letter that the buyer’s credit has been reviewed. So typically, that’s going to carry more weight in the real estate world. In today’s day and age, it’s a very competitive market, and knowing that you have a pre-approval is going to carry a lot more value when you’re up against other people who have a pre-approval and cash buyers. So I would say it carries a lot more weight. But if you’re still a ways out from purchasing, there’s nothing wrong with a pre-qualification. But if you’re serious and you’re really — you may make an offer, I really would advise, you know, I think having a pre-approval is the right way to go.

Tim Ulbrich: I think it’s worthy, Tony, that we’d spend a few moments talking about the different types of mortgages or loans that are available. Obviously we started the conversation with talking about when we might work with a lender, we talked about pre-qualification/pre-approval, but there’s more than one option that is out there that could have significant implications on not only rates but also down payments, how inspections are conducted, so talk to us at a high level about the different types of mortgage lending options that are out there for a home buyer.

Tony Umholtz: Great question. So we have the three main products that you’ll hear out there are conventional loans, FHA loans, and VA loans. And then of course there’s jumbo loans. And I’ll kind of go through at a high level what each of these are. Conventional mortgages are typically backed by Fannie Mae and Freddie Mac, not to get too technical and boring on this call. I don’t want to — I won’t get into the details of the secondary MDS market. But they’re essentially insured by government-sponsored entities because Fannie Mae and Freddie Mac are generally considered as government-sponsored entities, so when they insure a mortgage, an investor who buys that security has the — basically the intrinsic value, knowing the intrinsic value that the government’s going to back that investment. So if the home buyer were to default, the government’s going to reimburse the investor. So they are pivotal to the keeping our home mortgage market vibrant. Fannie and Freddie purchase so many loans. If we didn’t have those, it would be very much in trouble. The FHA is the Federal Housing Administration, can be very attractive. It has some programs for home buyers that may have a little bit of a challenge with credit or a little bit more flexible situation. So the FHA serves a big need. Typically, there’s home, there’s a cap per county, meaning that each county in the U.S. has a cap on the size of an FHA loan that’s allowed. And again, this is a government-backed mortgage as well. Then there’s VA loans, which VA loans are a great program, but it is kind of isolated to just a small sliver of the population who served our country. It would be for any veteran or active military. So that’s kind of what a VA loan would be. And it has its own guidelines as well. And then there’s jumbo loans. And what those are are loans that are above the conventional or conforming loan limit for a county or area. So the majority of counties in the U.S. had a $510,400 loan cap currently. Now that may change the beginning of the year 2021, but currently, that is where the limit is in most counties. You know, for example, in California, areas in California around San Francisco, Los Angeles, northern Virginia, Alexandria, Washington, D.C., New York City, you have a higher conventional loan limit in those markets, sometimes up over $700,000 depending on the county. But anything above — generally above $510,400 loan amount is considered a jumbo loan amount. And the significance of that is it’s not backed by Fannie or Freddie. So it’s not backed by one of those government-sponsored entities. It’s more private capital at risk, whether it’s a mortgage REIT, private like investment fund or a bank’s balance sheet. So a lot of jumbo loans are written by banks and are held on the balance sheet like just any other asset. So they’re just viewed with a different lens. So hopefully that was a high level, I didn’t want to get too technical.

Tim Ulbrich: No, that was great. Succinct. And I would reference our listeners to if you go to YourFinancialPharmacist.com/homeguide, all one word, we have a home buying guide that goes through several steps of the home buying process but also talks about each of those loans in more detail and I think builds upon the quick summary that you gave, Tony. And I think as I alluded to, it’s so important that our listeners understand these options. I think ideally before they even get too far down the path of searching for homes and beginning to think about where this home buying decision fits in because it will have significant implications on things like down payments, on rates and other types of factors. And so it’s an important decision to weigh and to understand. And we’ll talk in more detail about the pharmacist home loan option as I know that’s going to be of interest to many folks that are listening, how that compares to some of the options that you discussed, what that means in terms of down payments and credit scores and maximum loan amounts, which you already alluded to here a little bit, so hang with us and we’ll get there in just a little bit. Tony, you threw out the term REIT, and I know that’s something we haven’t talked a lot about on the show before. So I don’t want to go down a REIT discussion necessarily — we can cover that in more detail on a future episode — but for those that heard and may be wondering or hearing that for the first time, can you quickly define the REIT concept?

Tony Umholtz: Real Estate Investing Trust is what a REIT stands for. And again, we won’t go down too much into this rabbit hole, but that can encompass — a REIT can actually own real estate, right, can be publicly traded. They can own apartment complexes and all these different real estate assets, tangible assets, office buildings, shopping malls, data centers, you name it. There’s different sorts of REITs out there, and some are publicly traded, some are private. But there are actually what’s called a mortgage REIT. And there’s many that are publicly traded. And I’ll just throw out one, it’s called the Redwood Trust and it’s publicly traded. They are known for buying nonconforming jumbo mortgages. So that’s when I referenced that, there are actually REITs that buy mortgages that they have to originate them per their guidelines. But they are — they will essentially, if you originate it following their underwriting guidelines, they purchase the loan. That’s for jumbo mortgages.

Tim Ulbrich: And I want to spend a little bit of time talking about rates and something that it’s obviously a part of the lending process, people focus on it for good reason as I talked about on sharing my most recent experience refinancing our home with IBERIABANK/First Horizon rates matter. And we were able to go from a 4.625%, we bought here in the peak really of the market and rates in Columbus back in fall 2018 and refinanced that to a 30-year 3%. And my usual disclaimer will be inserted here as we talk about rates as we’ll talk about the makeup and nature of rates, it obviously can be and is very different based on the time period, based on what’s going on with rates and the economy, as well as based on factors that are specific to the individual. So as I mentioned, 3%, in no way am I trying to imply that that is what somebody may or may not get. We actually may see rates that are lower. Currently, some may be higher based on their own situation. But a general discussion about the makeup of rates is warranted as I know that’s such an important part of this process. So Tony, how is a rate determined? Kind of building off my point that it can and is different from person to person. And what factors are considered when somebody’s rate is being calculated?

Tony Umholtz: Great question. There’s a lot that goes into the interest rates. And the big factor is the market itself. So the interest rates are calculated really not by the Fed. Now, the Fed has a huge influence. And traditionally, I mean, I go back when I first started in the early 2000s in this business, the Fed had less power than it even does today as far as what they’re doing as far as mortgage securities. And that’s what they’re doing with buying bonds directly, which really keeps rates down. But the trading of the mortgage-backed security market is what dictates interest rates. So that is really why it can move from day to day. Right now, we’re in an economic crisis. I think the Fed has done an amazing job coming in and just stopping what could have been — as bad as things are, imagine if the Fed didn’t do what they did providing PPP to business owners, doing all of these things that they did to really backstop the economy. And I think that that’s been a really blessing for the U.S. But as a result, rates are very low, and the MBS market is what controls interest rates. We hear talk about the Fed Funds rate. The Fed Funds rate might be pretty much 0% right now, but that’s not really what dictates the mortgage rates. So it’s called MB — Mortgage-Backed Securities is what dictates where interest rates are going to go. But there’s a lot that goes into it. So the other big piece is of course the borrower themselves.

Tim Ulbrich: Yes.

Tony Umholtz: So their credit score is going to matter. It’s very highly sensitive to credit score. It also can be sensitive to loan-to-value. And what that means is what your home is worth compared to the mortgage amount. That can influence the interest rate you receive. A refinance compared to a purchase, oftentimes purchases receive a slightly better rate than a refinance will. The other factors are the property type. Condominiums are considered a riskier asset in the eyes of the lender than a single family home generally. You see a small increase in interest rate for a condominium. You also may see a small increase in interest rate for a multifamily property versus a single family property. And what I mean by that is a multifamily is considered to be a duplex, which is two units, a triplex, which is of course would be three units, and a quadplex, a four-unit property. Those can carry slightly higher interest rates than a single family home because of the property type. But even as a buyer, you know, if you purchase a condominium, there’s potential for risk for any of us. So the due diligence a lender does in assessing the condo’s what’s called warrantability, meaning its approvability as a condominium, just supports the buyer. It’s really like Big Brother looking over your shoulder when assessing a condo because the lender is going to assess the budget, they’re going to assess the viability of the project itself, make sure that the condo docs are in order. Essentially, they’re going to make sure it’s a viable project and protect both the buyer and the lender, but especially the buyer from special assessments. So condos are just looked at a as a little bit of a riskier asset class versus a single family home, generally. Also then the multifamily properties, duplex, quadplex, triplex, as we referenced, they’re going to potentially have other renters in the project and could add a little bit of a risk rate. So that’s why they have a slightly higher rate.

Tim Ulbrich: And I’m glad you differentiated that, Tony. I know — I feel like in a time period like this where rates are so low and it’s garnering so much attention, so many news articles out there about great time to buy, great time to refinance, everyone’s talking about rates. It almost becomes like a cocktail conversation, you know, where people are like, oh, you got what rate? You got what rate? And I think just reminding folks that at the risk of perhaps oversimplifying, what I heard you say there is that the rate, really three main buckets I hear is determining the rate: the market factors, which are changing of course day-to-day, you talked about the mortgage-backed securities, the individual factors of the borrower themselves in terms of their — looking at their credit scores, their debt-to-income ratio and obviously we know that’s different from one individual to another. And then the third bucket I heard there would be the actual type of lending and what’s unique to that specific property, whatever they’re looking at. So single family home versus the multiunit versus condos and then you even mentioned how it can be different on a purchase versus a refinance. So again, great summary and a good reminder that of course we’re looking at rates, we should be thinking about them, we know how they can impact a monthly payment, but really understanding that that can be different from one individual to another. So if I’m in a position, I found a house I want to purchase, and I’m looking to move forward with essentially writing up a purchase agreement, what things can or cannot be included in a purchase agreement? And the reason I’m asking this question, Tony, is I know we have had a couple folks from our community working through this process that may have realized some of this for the first time. And it’s worth talking to others about as well. So things that can or cannot be included in a purchase agreement.

Tony Umholtz: You generally when you’re going to — this is pretty universal for all lenders, you want to try to keep your purchase contract to the collateral, which is the actual piece of real estate that you’re looking to purchase. And you know, oftentimes, you’ll see a lot of other furniture, stereo systems, whatever, you name it, referenced in the contract, other items outside of the real estate that aren’t tangibly connected to the property. You don’t want to keep those in the contract for the appraiser or for the lender because we’re not there to finance personal property. We’re there to finance the actual real estate. So you have to be careful to keep that out. You can have another agreement for personal property with the seller. But you don’t want that to be part of the collateral for the appraiser view or for the lender. A lot of more experienced realtors will know this, but not everybody is aware of it. And if you’re buying a for-sale-by-owner and you’re working directly with a seller, it’s very common to see that.

Tim Ulbrich: Yeah. Tony, I want to go one step back before we talk about escrow accounts and then dig into the pharmacist home loan product in more detail. One of the things you mentioned that I think is of interest to our listeners is you mentioned the impact of credit scores on rates and how sensitive that can be. Can you give us some more information about what do you mean when you say how sensitive it can be? And perhaps that can help also guide or get folks thinking about strategies as they look at improving their credit and how that can impact the lending process.

Tony Umholtz: Another good point. So credit scores are — especially in conventional loans, especially on long-term fixed rates, so 30-year fixed especially — are going to be highly sensitive to credit. So someone that has a 680 credit score compared to a 740 credit score is going to have a different interest rate, clearly. And it’s even as granular as 700 to 720 or 740.

Tim Ulbrich: OK.

Tony Umholtz: There can be different movements in rate. One could have an eighth or a quarter higher rate because their score is 20 points below that 740 factor or if you start going into the 600s, it could be much lower than a 740. So it is highly correlated to credit score. And we actually have a program that we use for our clients where we’re able to boost the client’s credit score about 30 points in the processing time. Again, it just allows them to see — we have a program that will allow them to when we run their credit or give us what their credit score could be if they handle a few things on their credit, whether it’s paying down a credit card, paying down an installment debt, and that’s been a really good tool to help maximize not only qualifying but getting better rates. It’s highly, highly sensitive to — and certain programs have credit score minimums, right? You can’t go any — and it’s very sensitive on jumbo loans. A lot of jumbo loans will not go below a 700 credit score. It’s a big adjustment to both qualifying and interest rate.

Tim Ulbrich: Yeah, and as you mentioned, an eighth or a quarter of a point, that’s a big deal on $300,000, $400,000, $500,000, you know.

Tony Umholtz: Right.

Tim Ulbrich: Obviously people can run the numbers. So really being able to see that difference or being able to do some things to shore up that credit score could make a big long-term impact on the amount of interest that they pay over the life of the loan. Tony, let’s talk escrow. I know I mentioned this in detail when I talked and shared my refinance experience with IBERIABANK/First Horizon, but I think it’s one of those topics that for many, myself included, is just still kind of fuzzy in terms of really understanding how escrow works, pros and cons of pulling out of escrow, who may or may not have that options, what that would look like, what they should be thinking about. So give us kind of the main talking points around escrow. What is it? What’s the purpose? And what pros or cons may come from somebody looking to waive escrow?

Tony Umholtz: So escrows are just simply going to be your taxes and your insurance. Another word that is floating around are impounds is another word you’ll sometimes. But escrow essentially is just the taxes, your homeowners insurance, your flood insurance if you’re in a flood zone. So things that you’re going to pay no matter what, right? Even if you paid cash for the home, you’re going to owe your county or municipality or your state, and you’re also needing to pay for insurance to make sure your asset’s insured. So essentially, what lenders look for is typically at a 80% loan-to-value, a lot of lenders, I don’t want to say it’s universal because not all programs will allow it. But you know, some programs will allow you to actually waive escrow. What that means is you are paying the taxes and the homeowners insurance on your own. Now I want to say one thing about flood insurance. If you’re in a flood zone and you have a mortgage, even if you waive your escrow, like your homeowners insurance and your property taxes, you still have escrow for flood. That’s a federal mandate that lenders can’t get around. But you can waive the other two. You can have the homeowners — homeowners insurance is also called housing insurance, and you can waive those two items if you’re under 80% loan-to-value. If you’re over 80% loan-to-value, which a lot of first-time home buyers are, a majority are, you cannot waive them. The lender is required to escrow them. There really is pros and cons to having escrow. The majority of, again, of first-time home buyers are going to be over the 80% limit. So they’re going to typically be required to escrow. And a majority of people, even below 80%, I find want to have the escrow. And the reason behind that is you’re responsible for paying those lump sums on your own if you waive your escrow. So if you have an $8,000 annual property tax bill, and let’s say it’s due in November, which a lot of municipalities are, you’re paying $8,000, right? And if you have a $3,000 homeowners insurance bill around the same time, you’re paying $3,000. So most people like to have that spread out over the 12 months. And all the lenders doing is collecting each month 1/12 of your payment each month. Now, the cons are — of that is you don’t control it. Right? Meaning the lender does, and they’re holding the money for you. And right now, it doesn’t matter as much because interest rates are so low on deposits. So if you hold your money in the bank, you’re not really making much on it. But when interest rates go up and you can earn 2.5% on a Money Market account or more, the bank is holding your money and you’re not. So you can essentially earn interest off the money. That’s one of the cons I would say. And then the other thing would be just when you’re going to refinance, especially late in the year — and this is a key point I think people who are refinancing need to understand — if you’re getting close to the time when your taxes are due, the lender is going to have to collect a lot of tax. And it’s going to look like they’re rolling — I mean, if you were to refinance now, you’re almost rolling a year’s worth of tax into your mortgage. Now, the existing lender is going to give you back a check for everything they’ve built up in the escrow account.

Tim Ulbrich: Right.

Tony Umholtz: Right? So it will be a wash, but it’s going to look like a lot of money. Where if your escrows are waived, it’s a little bit cleaner. You don’t have all of that lump sum being moved back and forth. So that could be another pro to waiving escrow. But majority of people like the simplicity of having the lender take care of it, it’s one less for them to have to worry about, and just the ability of not having to stress over having to make lump sum payments on time.

Tim Ulbrich: Yeah, and I think, Tony, great points. And for those that do decide to pull out of escrow, you know, you mentioned being ready for that big payment or here, it’s divided into two payments. So you know, obviously there’s some strategies that can help that in terms of essentially creating a sinking fund for your taxes and insurance and every month contributing to that so you’re not caught off guard by that. But I think for everyone, individual situation, weighing the pros and cons and evaluating that as you’re going through the process if they have that option available to you based on loan-to-value.

Tony Umholtz: The one thing I did want to mention about escrow — sometimes, you’ll hear hey, there’s an escrow waiver fee or my rate is a slightly higher if I waive escrow.

Tim Ulbrich: Right.

Tony Umholtz: And some programs do have this adjustment. And the reason why is I mean, if you technically didn’t pay your taxes or your insurance, there could be risk to the lender. I mean, in some counties and states, if you don’t pay your taxes, someone could buy your tax deed. So there’s risk to the lender potentially if you didn’t do that. So I just wanted to make sure I outlined why there’s that fee that you’ll commonly see in the industry.

Tim Ulbrich: Great stuff. I’d like to wrap up our time together by talking about the pharmacy home loan as one option that folks may consider as they’re going through the home purchase process. And we’ve talked about it before on episodes 136 and 154. But I think it’s an opportunity that many of our listeners likely will want to consider and evaluate as they’re looking at all of their options. And what we know is one of the biggest barriers to pharmacists being able to purchase a home is student loan debt. And for most conventional types of loans, this obviously can greatly impact their debt-to-income ratio and certainly could affect someone’s ability to even get a loan or greatly reduce the amount that they could get approved for. So Tony, talk to us about the professional mortgage loan that IBERIABANK/First Horizon offers in terms of what it is, minimum down payments, term, max loan amounts, and things that they should be thinking about as they’re evaluating this among other options available to them.

Tony Umholtz: The product for pharmacists is going to — it’s going to be under that conventional loan bucket, essentially, even though it’s kind of a specialized product, because it’s not an FHA loan or a VA loan. But what it is is it’s got the ability for a pharmacist to purchase a home, if you’re a first-time home buyer, you can put as little as 3% down. If it’s a subsequent purchase, it would be 5% down. So very little down payment, and there’s no mortgage insurance. And I find that the rates tend to be better than normal conventional products by a bit of a spread, which can vary. But I find that can be a better rate than you can get ordinarily, even if you put 20% down. The max loan amount if $510,400, so it does kind of follow along — currently, that’s what the product we offer has a max of $510,400. It’s eligible for both a purchase transaction and a refinance transaction for both. But the real benefit’s just very little money out of pocket and the no PMI and a very competitive interest rate. So kind of the ability to have both of those makes it a very viable option for many. So that would be the biggest pluses. There is a biggie — you referenced student loans. It’s a little bit more lenient on the student loan calculation versus like some of the normal conventional products, I would say, like Fannie Mae-backed. It has a little bit more of a lenient way that they look at the student loan debt as well.

Tim Ulbrich: And talk about credit score impact here as it relates to the pharmacist home loan product.

Tony Umholtz: There is a minimum credit score of 700 with the pharmacist loan product. So you would have below 700, we couldn’t do the loan program. But 700 is the minimum. That is one thing we do have to keep in mind. So credit is important.

Tim Ulbrich: And I’m assuming just like other lending options, obviously the better the credit score, you get above 740 and beyond, I would assume then, you know, again, different person-to-person, but rates would be expected to get better.

Tony Umholtz: Right, right. The rates are going to be better at 740 up. I’ve even seen sometimes when you get higher credit, people will even get what’s called a lender credit for their rate too, which is kind of a rebate from the lender towards closing costs because there’s some add-ons or adjustments that are positive for better credit scores. So you’ll see that sometimes even as well, Tim. I think that yeah, credit scores really do impact the pharmacist product. 700 is going to be not quite as good as 740 or 720. Also as a kind of mini — if you are putting 3% or 5% down on a condominium, it may have a slightly higher interest rate than if one of your colleagues bought a single family home. So it’s something else to be aware of with the pharmacist home loan. And then same thing with a multifamily. I think this might be a good time to address that too is the — a multifamily is going to require a little bit more money down on the pharmacist product as well. It’s not going to be 3% down let’s say. A duplex might be 15% down. So you have to be very prepared for a much larger down payment if you try to buy a multifamily type property with this program.

Tim Ulbrich: Tony, one of the things you mentioned before we hit record that I think is — it would be helpful for our listeners to hear a brief overview that just highlights I think some of the unique circumstances that can happen based on trends that are occurring in the market at the time. Currently, you mentioned some of the things that you’re seeing around the quality of appraisals and how that can impact the lending process and the timeline moving forward. So tell our listeners a little bit more about that.

Tony Umholtz: Yeah, you know, in our dialogue there, Tim, just some of the things we’re seeing — and we do loans in a lot of different areas of the country, so it’s not subject to one market. But we’ve been seeing this inventory type. We don’t have quite enough inventory out there.

Tim Ulbrich: Right.

Tony Umholtz: I think home builders will eventually catch up, but right now, that’s the situation we’re in in many markets around the country. And you know, appraisals are starting to be done and they might be coming in a little bit higher values, and values are kind of going up at a pretty good rate right now as far as property appreciation. And in certain markets, there’s just not enough sales. And you’ll see some appraisals, every appraisal is scored. So they have a scoring mechanism that a lender’s analysts will look at, and that’s based upon comps in the area, adjustments in the appraisal, time since the last sale, so there’s a multiple things — I don’t want to get too technical on the appraisal side. But that’s how appraisals are scored. And oftentimes, lenders are required to do like a secondary review, which is called a field review or sometimes they’re required to even order another appraisal, depending on the lender or the situation. I’m kind of speaking in general because I’m trying to think of my whole industry here holistically. You know, the one thing that we have to be aware of is these field reviews. And appraisers are so busy with the volume right now between the purchase market and then the refinance market that they’re not always as timely as they used to be. So we used to be able to get a field review within a few days or two days. It might be a week. So it’s not that I’m seeing it on every transactions, by no means the case, but we’re seeing more of them lately. And it’s just — I think it’s because of where we are in the market cycle and the fact that there just isn’t that much inventory. So one thing to keep in mind is the appraisal is reviewed and is reviewed for quality. And sometimes those things come up too. So there is a multitude of factors in the lending process. And that’s why I always joke with people about this. There could be some — it’s like the airline flight with turbulence. There could be turbulence in the flight, right?

Tim Ulbrich: That’s right.

Tony Umholtz: But we’ve got to land safely is the key. And you never know. Sometimes it’s perfectly smooth sailing, but then there’s other things like this that are out of everyone’s control. But it’s just something to be aware of, you know, that these things can come up, even around the quality of the report. And if you hear that word, field review, that’s what it is. It’s a secondary look, and lenders are required to do that.

Tim Ulbrich: Tony, as always, great stuff. I feel like you provide great education, you succinctly explain what could be a very difficult process and appreciate you taking time to share your expertise. What is the best way for our listeners to reach out to you if they have questions or considering the pharmacist home loan product with IBERIABANK/First Horizon. What’s the best way to get in touch with you?

Tony Umholtz: Email is fine. I’m also old school, I do like phone calls, so I’m always welcome a phone call. I have a team of staff, some very hardworking and diligent individuals on my team that can also answer questions. Phone or email are always welcome. Those would be the best ways to reach me.

Tim Ulbrich: Awesome. We’ll link both of those in the show notes for our listeners, which you can access by going to YourFinancialPharmacist.com/podcast, find this episode and you’ll see that information listed in the show notes. And to learn more about the steps in consideration to getting a home loan, make sure to check out the post on the YFP site titled “Five Steps to Getting a Home Loan” by visiting YourFInancialPharmacist.com/home-loan. And as always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, please leave us a rating or review on Apple podcasts or wherever you listen to the show each and every week. And if you’re not yet a part of the more than 6,000 pharmacy professionals across the country that are joining us in the Your Financial Pharmacist Facebook group, please make sure to check that out, join a community that is committed to helping and empowering one another on their path towards achieving financial freedom. Have a great rest of your week.

 

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YFP 168: How Blake and Zac Analyze Real Estate Deals

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How Blake and Zac Analyze Real Estate Deals

Blake Johnson and Zac Hendricks talk about how they joined forces to build a successful real estate portfolio and investment strategy. They talk about their individual roles when investing in properties, the make-up of their current portfolio, and why they chose to focus on real estate investing. Blake and Zac lay out all the secrets on how to analyze real estate deals and break down the numbers on two of their own investment properties.

About Today’s Guests

Blake Johnson is a 2013 graduate of the University of Arkansas for Medical Sciences. Upon graduation, he married his wife Kristyn and he began working in a small town independent pharmacy. He worked there for 2 years and is now working in Conway, Arkansas at a local independent pharmacy. Upon graduation, Blake decided that paying off student loans would be a top priority, while still being able to travel and save for his retirement. After three and a half years, he was able to pay off his and his wife’s student loans. Since then, Blake has been able to increase his savings and start purchasing rental property. In his spare time, he enjoys traveling as much as he can and teaching others about finances.

Zac Hendricks is a 2013 Bachelor’s of Business graduate from University of Central Arkansas with an emphasis on Innovation and Entrepreneurship. Zac worked as an intern for a financial advising firm while finishing his degree at UCA. This is when he bought his first property. Upon graduation Zac got a job working in logistics at Maverick Transportation. While moving up in the ranks at Maverick he and his wife Mav purchased 7-8 more properties which eventually led to their finding financial freedom to change careers and working in the family business—Hendricks Remodeling. Zac and Mav find their most joy in using their business skills to fund missionaries in the 10/40 window and expanding the Kingdom of God.

Summary

Blake Johnson and Zac Hendricks met 7 years ago at a church they were both attending and decided to join forces as partners in real estate investing. Blake handles the financing and acquisition of properties, analyzes numbers and focuses on networking and finding deals. Zac assesses the homes with a quick inspection to determine rehab costs and rehabs the properties. They run numbers together to see if the deal is a good one. Zac’s wife manages the properties. Together they own 14 rental properties and a lot. They are currently renting 13 of the properties and are in the process of rehabbing one.

Blake breaks down their process for analyzing real estate deals and shares that there are several areas that need to be looked at, including accounting for capital expenditures, vacancy, and property management. Blake and Zac share the numbers from two very different real estate properties they purchased and the rehab process for each.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: Blake and Zac, thanks for joining the show, and welcome to the podcast.

Blake Johnson: Good to be on here.

Zac Hendricks: Yeah, hey.

Tim Ulbrich: Appreciate you guys taking time. Excited to dig into this topic as we’ve been talking on the show for some time now wanting to bring more real estate investing content and happy to do that with Blake, who was on the show, Episode 082, with the ultimate mentor, Joe Baker, to talk about how he and his wife paid off $150,000 of student loans in 3.5 years. So excited to have him back on the show to talk about another part of his journey as real estate investing. And we’re also going to have his partner in real estate investing, Zac, join us to talk about how they work together, how they collaborate, what are their goals related to real estate investing, and my hope is as we have with other stories, that those that are interested and just hearing this for the first or second time, learning more, or perhaps taking that next step that these stories will not only be something that you can learn from but also something that you can take action. So Blake, it’s been awhile, how’s the debt-free life been treating you? And what have you guys been up to?

Blake Johnson: Debt-free life is incredible. I guess since the last time we spoke, my wife and I have done a lot of traveling, a lot of investing. It seems like when you’re out of debt, you can invest more. I guess that’s part of the reason to get out of debt. One of the big things that’s happened with us, we were able to adopt a child from birth, private adoption. And being out of debt made that a lot more smoother process. That was probably the most excitement that we’ve had in a long time. He’s actually turned a year old today.

Tim Ulbrich: That’s awesome. And congratulations. I know you and I had a chance to talk about that a couple weeks ago. I think just another example of the power of being debt-free and what that means for goals and being able to free up some of the cash flow and achieve some of those other things that are important. So Zac, excited that you’re able to join us today and really excited to hear more about your real estate journey and specifically how you and Blake are working together. Tell us a little bit more about yourself and ultimately why you got into real estate investing.

Zac Hendricks: Yeah, so we — my wife and I actually got into it kind of accidentally. My brother and I, whenever we were in college, we bought our first house together. We had no credit at all, I mean, we were broke joke. But we had a banker that we were close with. He said, “Hey, if you can bring some money, you can buy this house together.” So he helped us kind of get credit for that and then helped us buy the first house. My wife and I ended up buying that property from my brother when we got married. And we lived in it for a little while. Then we started moving around with the company I was with. And we had hardly any equity. It just didn’t seem like — it was so close to the university, the house was so close to the university that we said, it’ll be worth a lot more later on, so let’s hold onto it. So we rented it out and we didn’t know anything. My family has rental properties, my parents, but we didn’t know anything about it. So we got started in it and made a ton of mistakes. The first mistake was my wife let me be the landlord. That was a nightmare. We ended up with attic ladders torn out of the ceiling, three pitbulls left in the backyard, and about three dump trailer loads of trash in the backyard. So that was when my wife fired me from being a landlord, and now she does all of that. And anyway, so since then, we were moving around. We went to North Carolina, then we went Texas for a little while. And while we were moving, we decided, hey, let’s buy another property, just see how it is. So we bought one site unseen from North Carolina. It seemed like a pretty straightforward, easy deal, so we just bought it. And we realized that we could manage these properties from wherever we were and that it was really not that hard as long as you had the right systems in place. So when we moved to Texas, we ended up buying three or four more properties while we lived there and just realized, man, this is an awesome way to have some extra income, it’s a great way to just build wealth and at the time, we had set salaries so kind of like, well, this is the best way to kind of get ahead of the game. So in that time, we realized also if we’re not going to be doing ministry full-time, this is a great way for us to be able to support missionaries and other people that are local, and we can do a lot more in real estate than we can just with our regular 8-5 jobs.

Tim Ulbrich: So Zac, if I understood you correctly, you still have properties in multiple states? And then you guys are doing the property management for those?

Zac Hendricks: OK, yeah, let me clarify that. So actually, while we were moving around, we were buying properties in Conway. We lived in North Carolina and Texas. But we bought the properties in Conway.

Tim Ulbrich: Got it. OK. When I heard property management and how easy it was at a distance, I was like, oh, that’s interesting, love to hear more. So that makes sense. You were buying properties in Conway while you were in different locations. And Blake, talk to us about where your experience in real estate investing met Zac’s experience, ultimately how and why you guys came together — I’m assuming there’s some shared vision, perhaps different skill sets — and tell us a little bit more about what that collaboration and partnership looks like.

Blake Johnson: So Zac and I met about seven years ago at the church that him and his wife were attending at the time. And like he said, they moved off because of jobs. And funny thing happened, my wife and I were looking at rental properties, and we moved churches in Conway. And the first Sunday that we were there, Zac and his wife were visiting that church. And one thing led to another, we ended up in the same small group. And I can remember it vividly: We went out fishing on a local lake, and I started to express my love to want to get into rental property. So we talked back and forth, and we left it at, look, if you can find some properties, we can partner up. And so that started from there, and then our first deal, we landed two homes within the first deal. And so we’ve been there ever since.

Tim Ulbrich: And Zac, building off that, if we had to kind of divide roles and responsibilities that come with both acquiring, finding the deal, running the numbers, perhaps overseeing any work that needs to be done and then either renting it or selling it, how would you divide the roles and responsibilities and what each of you bring to the table.

Zac Hendricks: Yeah, so it was really interesting. My wife and I had kind of prayed about like the opportunities to find other people to get in with, and it just never really came. Blake and Kristin kind of came out of nowhere, and it ended up being just the perfect partnership because before, I was always the one finding the deals, and my wife was excited about it. She was ready to buy every house that we looked at, and I always had to tell her no or maybe, you know? Because she was just so excited about it. And then when Blake and Kristin came along, Blake just really dove into the acquisition side of things and also the financing side of things. So you know, I already had relationships with banks, he had relationships with some of the same banks, and so we both were kind of — we both still kind of handle the financing, but Blake analyzes things way more than I could ever dream of doing. He’s just so much more analytical than I am. His main thing is networking with people, talking with people, whether it’s wholesalers, whether it’s realtors, just other landlords, he’s really good about just meeting people, telling them what we’re doing, and then out of that, we found some deals, even networking with some local attorneys has helped. So then my role now, I mean, people ask me how we find deals, and I go, well I don’t know, you have to have a Blake, because I don’t look for deals anymore. You know, I’ll go and look at houses whenever we, whenever Blake finds one. I can kind of quickly do a ballpark of how much it’s going to cost to rehab or if it’s something we shouldn’t even be looking at or whatever and kind of a quick inspection of the property. But really, that’s the end of acquisition for me. And then we run the numbers together, so Blake usually has a — he can run numbers in his head super fast, so he usually just runs the numbers and tells me, yeah, let’s just do it. Let’s go for it. And then we kind of work from there. And then my wife, like I said before, she fired me from landlording, so she is the property manager. And so it really works well. We have two children, a 4-year-old — an almost 4-year-old and a 1.5-year-old. It’s great because she stays home now. She used to be a schoolteacher, now she stays home and manages properties full-time and then works for me with our remodeling company. So it’s really great because she handles the property management, she gets to be the bad guy and good guy where I just go in and I can fix things that are broken. So it works out really well.

Tim Ulbrich: So our listeners can understand before we go into the two recent purchases and kind of hear behind the scenes of how you guys think through and analyze those properties, if you could each talk for a moment — Blake, if you could start, and then Zac, talk about what is your portfolio — and I’m guessing there’s a lot of overlap, so feel free to clarify that. What is your portfolio? And types of properties you’re generally looking at investing in or specializing in as it looks to your portfolio? And then ultimately, what is some of the purpose, the vision, the why behind what you hope to gain from real estate long-term? We’ve heard a little bit of that, you just mentioned, Zac, what some of that has afforded to your family in opportunities, and Blake, I know you and I have had this conversation one-on-one. But I think it would be really helpful for our listeners to hear not only a little bit more about your portfolio and strategy but also what the why and purpose is for you and your family as it relates to real estate investing. So Blake, you want to start us off?

Blake Johnson: Yeah, I can start off. Zac and I, I don’t have any properties by myself. All of our properties that I’m involved in are in our LLC. Currently, we own 14 properties and the lot. So we can get into that later. That one’s a fun example. But anyways, we have 14 homes right now. 13 are rented, and one we’re rehabbing. And that’s where we’re at. Ultimately, my purpose down the road would try to get to 40 or 50 properties and have those paid off by the time I’m 50. I always want to be a pharmacist. I always want to be in the community. That’s what I went to school for. But if times get tough or if something happens health-wise, this is a fallback plan for replacement of your income and for retirement down the road. You never know how the economy’s going to be. People always have to rent homes. So this affords us a different avenue outside of the stock market. Asking about our purpose for the business, funny you ask that. Our corporate name is IHM Properties, which stands for In His Name. So our purpose for the creation of this business is not only to provide for our family financially down the road but also to be able to give back to missionaries overseas or to people locally. The wealth that we create is not only ours, but it’s to give to others.

Tim Ulbrich: And Zac, for you and your family and for the overall business, again, I’m sensing a lot of overlap, but anything else there to add?

Zac Hendricks: Yeah, no, he pretty well covered it. That’s our main goals, just to be able to have the financial freedom for ourselves but not just keep it to ourselves, be able to give back to others.

Tim Ulbrich: Awesome. So let’s dig into two recent purchases that you made as a part of your LLC. Talk through how you analyzed those deals to determine that you ultimately would move forward with them. And again, I think as we talk through some of the numbers and talk about your thought process, I think this will help our listeners see that are either building a portfolio or looking at that first one or just here to learn more get a little bit more information to hear from those that have been down this path. So before we crunch some numbers, Blake, give us a bird’s eye view of how you analyze deals. What’s your process? What are you looking for when a property comes your way? Where are you looking for properties? I heard Zac mention earlier some networking and things that are going on. Are you looking at the MLS? Are you primarily getting these from wholesalers or in contact with realtors? Numbers that you run? Talk us through not only where those properties are sourced from but then your thought process when you’re evaluating one of those.

Blake Johnson: OK, that sounds great. I think the first thing before we dive into the how and to the where and all that type of stuff is just to talk about a few figures that’s used in the rental business. There are just only a couple of them, but when evaluating a property, there’s three things that I look at. One of them is called capital expenditures or if you ever dive into the literature, that’s shortened for capex, which basically means your normal maintenance and also your long-term maintenance of the property. So your long-term maintenance is your roof, your heating and air units, your water heaters, all that type of stuff. So capex is one of the numbers that we look at. Another number that you have to run is one called vacancy. People always don’t stay at your house, and that would be nice if we had people stay there for 20 years straight. But your turnover is every couple of years, you’re going to have get new people in. You’re going to have to rehab it in between tenants. And so vacancy is a number that we run into our calculations. And the last one, if you have it — and I always recommend people to put it in there anyway — property management. Most people that start out kind of manage their properties themselves. They get tired of it anyway. So we always run that in all of our numbers. How we run numbers, when we find a house, the big thing we are looking for is the net cash flow. We’re not trying to pull any money off the business, but we want to make sure that these homes pay for themselves and has a little bit of room of a cushion so if interest rates go to 10 or 12%, there’s enough room in the numbers to cover that. So when we look at a house, we usually take — instead of looking at the purchase price, we look at what we think it will rent for and we take percentages off that gross rent. So for instance, if we use a home that we think will rent for $1,000, we use a 10% for capital expenditures, 5% for vacancy, and then 5% for property management. And so off that $1,000 rental home, we would use a number of $800 as our I guess gross margin. So if that gross margin can cover the payment, your taxes and your insurance and still net around $100 to us, that’s a good deal. And in any market, whether it’s an up or down market, you’re going to stay afloat. It’s a very conservative number, and it helps keep us — helps us sleep at night. So that’s how we run numbers. The second thing would be is a purchase price. I think Zac mentioned, we love to purchase all of ours with 0 money down, and that sounds intriguing, but the only way to get in homes $0 down is to have homes that need remodeling. So let’s take that $100,000 home, most banks if they’re local or small banks will lend up to 85% of the appraised value of the house. I would put appraised value in parentheses because appraised value is the value it appraises at after the repairs are done. Let’s use that $100,000 house, say we find it for $50,000. We go in it and see that it needs $20,000 worth of repairs, we can take that repair list to the bank, they’ll get it appraised, and the appraiser will say, “Hey, we’re putting in new flooring, we’re putting in new paint, I’m going to appraise this house at $100,000 after the repairs are done.” And so the bank on this home would loan up to $85,000. So as long as we can keep our repairs under the $85,000, so if it’s $20,000, we’re able to get in that house with $0 down. Still got really good equity.

Tim Ulbrich: And real quick on that, Blake, to me that also just goes to an important point about building some of those relationships. So what is the strategy there, you know, for folks that are looking to start their first or second property and not only is the analysis side of it or perhaps other pieces of it overwhelming, but then to begin to think about how those relationships are formed, what was your strategy in forming those relationships? And was it one bank that you were primarily working with? Or did it take you some time to find that lender that was a good fit?

Blake Johnson: I think one of the biggest advantages pharmacists have is our W2 income. The average salary across the United States is around $120,000, you know, that’s 3x the average wage for any normal working family. So that’s an advantage to pharmacists because what banks look at is not what your profit is from stocks or your profit is from bonuses. They want to know what your W2 income is. They look at what your salary and wages are. So as pharmacists, we have an advantage when we walk into a bank to forge that relationship. They want you. You’re a safe investor. You’ve got extra income coming in each month more than most people. And so that was an advantage for me. But on the relationship side, Conway’s a very small town. And we’re involved with a pretty good size church, and so out of our church, there’s two local bankers that I’ve developed relationships with. And those are the ones we use. And they’re local banks, so they’re real easy to work with. So we started working with them, and because of our conservative ways to approach purchasing homes and also just the income side, it makes financing homes pretty easy as far as that.

Zac Hendricks: Yeah, and I want to piggyback off that a little bit. With the finding a bank, if somebody’s new to investing and they’re trying to find a loan, find a lender, Blake hit on it, but the small bank, the small, local bank is perfect. A lot of the big banks just can’t — they don’t even care about you. And I don’t mean that in a terrible way. They have bigger fish to fry. The small banks, they care about their community, and they care about that you’re fixing up the neighborhood or that you’re just buying in the neighborhood. They care about that a lot more than they care about you. And so I’ve found that when you go to a big bank, you’re not going to find anybody that really cares a whole lot. But when you go to the small, local banks, they’re going to want to invest in a lot more.

Tim Ulbrich: So Zac, I can jive as Blake is talking about running numbers and analyzing and crunching it, like that’s speaking my language. What is not speaking my language is what I perceive to be your role, which is estimating rehab costs and kind of seeing that piece through. So talk us through when Blake calls you or messages you and says, “Hey, I think we’ve got a good one. I need you to look at it,” where does that knowledge come from that you feel comfortable walking through a property to estimate those costs? Where did you acquire that knowledge? What are the things that you’re thinking about, looking at? And you know, obviously also to protect yourself against some of the bigger items, I’m sure often what you expect and what is reality may not always line up. So talk to us about not only your process of doing that but also how you account for some of the margin of error that may happen just from the unknown.

Zac Hendricks: Yeah. So it’s been a learning process. I will say, I have an unfair advantage. My dad is a remodeling contractor. And so he’s owned — I actually work for him now — Hendricks Remodeling in Conway since 1987. So and he’s been in the business for longer than that. So there’s a little bit of an unfair advantage there because I’ve been around it my entire life. He put me to work for free whenever I was like 6. And so I’ve been around it, I’ve seen it, but the cost I didn’t always understand. I always knew what work went into a remodel, but I didn’t really understand the cost. And so that came in later, really with the first — whenever we were in Texas, we bought our first rehab project. And if anybody’s on here that listens to Bigger Pockets, they use the term BRRRR: Buy, Rehab, Rent, Refinance, Repeat. So that’s the strategy we’ve been at ever since that first rehab project. So before, we were just putting money in. And then we found that first rehab and we were like, oh wow, this is incredible. We don’t have to put money in. On that project, we lived in Dallas, and my brother at the time was working for my dad. I said, “Hey, run an estimate for me. How much is it going to cost to remodel?” And so I think we picked the property up for like $55,000. And then he went over there and he said, “Yeah, I mean, I think it’s going to cost blah, blah, blah.” I think the total cost was like $30,000. So I had him kind of walk me through what he was looking at as far as estimating goes. And so really, between my brother and my dad, they helped me understand the cost of things. And then from then on, it’s been experience. It’s just been we take one, we make some mistakes, now we know more. Now we know we’ve got to check the sewage every time. Now we know we’ve got to check the roof every time, the HVAC, there’s so many things now that we go, oh man, if I would have known that, that would have been better. So it’s really just getting into it. You can’t learn it without doing it in this business. You can’t just read a book or books. There is a really good resource called that Jay Scott wrote, it’s “How to Estimate Rehab Costs” is what it’s called. And double check me on the title. It is really good. It just talked about going from the top down for rehabs. I think he’s talking about mainly flips. But I read through that, and with some of the stuff I already knew, it really helped to just kind of oh yeah, I never really checked for rotted facia or whatever it is. I probably need to start checking that. And so he kind of gives you a little bit of a checklist — I don’t want to use a checklist, but whenever we walk through a house, I’m constantly just looking, just trying to figure out what issues there are. And then a lot of times, now me and Blake will walk into a house, and I’ll say, well, it’s going to cost this, this, this. And Blake will go, oh come on, we could do it for cheaper on this house. So there’s a little bit of back-and-forth there, and then we eventually come to a number.

Tim Ulbrich: That’s the sign of a good partnership. So appreciate that story. And I’m glad you mentioned the BRRRR concept as well, it’s one of the Bigger Pockets resources. We will link to those in the show notes, the estimating rehab costs book that you mentioned, the Bigger Pockets podcast, the Bigger Pockets blog. I’m sure we’ll talk about another Bigger Pockets resource at some point in the rest of the show. So we’ll link to those in the show notes, great resources. And I’m glad you mentioned BRRRR because Blake, it triggered my memory. One of the things I wanted to come back to, when you said nothing down, point of clarification: Are you referring to that when the deal was done at the point of refinancing, you didn’t leave any cash in the deal? But you ultimately had to obviously come with cash to purchase the property and do the rehab? Or do you have some other source of funds that you actually aren’t bringing cash up front to get started? Because I think that’s a hangup point for many folks getting started, even if they’re looking at a refinance down the road is that they still have the time period where they’ve got to purchase the property and fund the rehab and they may or may not be ready with that cash.

Blake Johnson: So yeah, that’s most of our properties that we do, the banks will let us come to closing with 10% of the purchase price of the home. But like I said, they’ll loan up to 85% of the appraised value. So the two local banks that we use, as long as the improvement plus that 10% down plus the purchase price is under the 85%, we’re able to pull our money back out. So on that $100,000 home, we’ll get it under contract, we’ll go to closing, the bank will provide the purchase price is $50,000, they’ll provide 85-90% of that, and then we’ll have to bring 10% of the purchase price down. But after closing, we have a pool of money that we can pull from to pay ourself back and also do the improvements. So you do have to have some money to come to the table to purchase the deal. But if you run your numbers and you can get your rehabs under that 85% margin, you can get your money back.

Tim Ulbrich: Got it. Thank you for that clarification. OK, let’s dig into a couple properties as examples of what you guys have been working on. One will be a little bit more traditional, the second we could categorize as maybe more interesting and creative, just to give two different examples and the contrast of how you approached each. So Blake, let’s start with the traditional property. Tell us about this one. How did you find it? Bedrooms, bathrooms, square footage, purchase price? And then we’ll have Zac talk through some of the rehab costs.

Blake Johnson: So most of our properties, I guess to clarify in the beginning of the question, all of ours are single family homes. We’ve tried a few duplexes. We’re actually looking at a few now, but we’ve looked at three and never made any of the numbers work. So all of our properties are all single family homes. And the first several came from the MLS. Up until about a year and a half ago, you could look on Conway’s website about once a month, find a deal. But it’s now been flooded with young investors, so the time of looking and finding a good deal on the MLS has really kind of gone away. So I’ve got relationships with a few lawyers, a couple of wholesalers in the area, and of course a bunch of realtors. And so the last several deals we’ve had have been from off-market deals from realtors or an estate type thing or an auction. So the first house that we’ll talk about is actually an estate purchase from a lawyer that I know. He’s the one that handles all of our LLC stuff. And I was discussing with him about how we were looking to buy some properties and if they ever have an estate sale come up where they’re needing a home purchased, we would be glad to do that. And about a day later, he texted us back about a house he had that was a four-bedroom, two-bath house. It was 1,800 square feet. And the guy had passed away over a year ago. The children were wanting to sell the house. So we went and looked at it. It’s 1,800 square feet, like I said, four-bedroom, two-bath. And we purchased it for $78,500. I’ll have Zac talk about some of the improvements that we made. But anyways, it appraised at — with the improvements — at $134,000. We put $20,000 into it and took a little bit more extra on the loan to cover a couple other projects we had going on. So our loan amount on that is $105,000. The good thing about that is our loan-to-value or how much we owe and how much it appraises for is 78%. So out the door on this one, we came out with 22% equity, which is music to our ears because anything below 80% loan-to-value ratio is really good and makes banks happy. So we’re pretty happy with that. It rents — we were excited; we got it rented for $1,350. So if you do the whole —

Tim Ulbrich: Wow.

Blake Johnson: Yeah, if you do the whole calculation like we talked about, the principle taxes and insurance on that is like $822. The capex or the 10% in rent is $135. And then the 5% for vacancy and property managing are $67 each. And so that one rents each month $258. So that’s one of our better deals there.

Tim Ulbrich: That’s awesome. And Zac, do you want to talk through a little bit of the rehab and what was included in there and what was or was not on budget along the way?

Zac Hendricks: Yeah, so this one is an oddball because we budgeted for a lot more than we ended up spending. Somehow or another, we ended up saving a lot of money. I think some of the subs that we used ended up being a lot cheaper than what we had used in the past. I think we budgeted like $27,000 for the rehab, and it ended up being like $17,000 or something like that. So that was a — we saved a lot of money on that one. Yeah, so it was really just a lipstick remodel is what I call it, anyways. We just — floors, paint, the guy had dogs, and they peed all over the floors. It’s a slab — it’s built on a slab, the house is. But somewhere along the way, somebody did a little addition on the front and had a little, a small — I don’t know if you can even call it a crawlspace, but it’s kind of a crawlspace, and it had wooden subfloors. So we had to tear all that out because the dogs — I mean, that smell is just terrible. So we tore out all the subfloors and then redid those. But that’s really, I mean, we just kills the whole house, and then it smelled like a brand new house. It wasn’t so bad. The next property that I think you’re wanting to talk about is a lot more interesting. This one was really basic: floors, paint, we put some granite countertops in, built a closet to make it an official bedroom, I mean, that’s really it on that one.

Tim Ulbrich: Yeah, and I think what was helpful about this one was just for folks to hear the numbers but also Blake, I like what you said about when I hear about you investing in Arkansas and I think you hear those numbers, 1,800-square foot, 4-bed, 2-bath, $78,500, obviously it needed some work, but there’s other people listening in other parts of the country that are like, I don’t even see those numbers exist, you know, in our part of the country. But what I heard you say is, you know, the relationships are really important. And here was a good example of a relationship with a lawyer. But you know, not necessarily just thinking you’re going to be able to find deals on the MLS but getting out to local meetups, taking advantage of those relationships, being a part of a community and getting creative in different ways to be able to find these types of properties and deals. So let’s dig into the other recent purchase. I guess again, you could categorize this as being more interesting, more creative, than the traditional one. So why don’t you start us off, Blake. Talk to us about this property. Why was it more interesting and I guess more nontraditional?

Blake Johnson: Sure. Before we dig into that, funny thing about the last house as far as rehab. We had to replace the ceiling fans. They had miniature ceiling fans in there. And pretty sure that Boeing sent some of their propellers into this place.

Zac Hendricks: Yeah, that was funny.

Blake Johnson: That thing was the loudest and most powerful fan I’ve ever seen in my life. It would just blow you away. The one other thing with that last house, something that you could let people know when they’re looking at homes is that one had two living rooms. It had the main living room and then there was an addition onto the house. Most of the time, you look at your rent, how much you’re going to charge for rent based on bedrooms and baths, and so that one already had three bedrooms, two baths, but we were actually able to spend $1,000 extra to frame in a closet, and we were able to increase our rent by about $150 a month. So if you run your return on investment there, it took us only eight months to recoup our costs in putting in a closet. So when you’re looking at a property, you’ve got to be creative because small additions like that can get you pretty good return. So let’s talk the second home. This one is really cool. So we bought this one at an auction. We actually paid cash for this. First auction we ever went to, nobody showed up at all. It was an auction that a local — the lawyer that sent us the first one told us about would be coming up. So we showed up on a Tuesday morning at 10 a.m., thinking that were going to be a whole crowd of people. About 9:59 rolled around, nobody rolled up, and then finally, we saw a guy, a gentleman walking up with a clipboard. He came up and I said, that’s got to be the guy. And sure enough, it was. Nobody else showed up, so we said, “What’s opening bid?” He said, “Open in bid is $35,500.” So we had to bid $1 over that. So we bought the property for $35,501. It was the craziest thing, he said he’s never seen where nobody shows up. So apparently we were lucky then. So this home is a two-bedroom, one-bath house. It’s around 1,100 square feet. But it’s in a really desirable area of downtown Conway. It’s right by downtown, a lot of people were tearing down homes, building up new ones, rehabbing them, I guess it’s like in your traditional Old Town downtown for people who are wanting to redo them and make them real nice. And so this one’s a two-bedroom, one-bath. I don’t want to spoil the fun, but we’re actually turning it into a three-bedroom, two-bath. Zac can talk about that. So we bought it for $35,500. Our rehab on the house is going to be right around $60,000. But the total value of the house is $125,000. So our loan on this house will be around $85,000, so we’ll have about $40,000 in equity.

Tim Ulbrich: Wow.

Blake Johnson: Yeah, the funny thing is — and we didn’t even know about it, when we purchased the house, we had gone and looked through the windows and some stuff, just to check it out because you can’t get in them at all. So we purchased the house, the next day we drove by, and Zac goes, Blake, this is big enough to split a lot off. I said, “There’s no way.” Sure enough, it was. We spent $1,000 and got it zoned off to have an additional lot. That additional lot is worth about $35,000, which is the same price we purchased the house for.

Tim Ulbrich: Wow.

Blake Johnson: This rezoning the lot paid for the purchase of the property. So our plans with that once lumber goes down the next year or so, is to build a new house there and rent that out. Anyways, that’s a fun part of that. I don’t know if you want to dive into the rent, all the numbers now or if we want to talk about the rehab and go on from there.

Tim Ulbrich: Yeah, let’s talk about the rehab and then we’ll come back to the rent. So Zac, do you want to talk about some of the rehab and the costs and what was involved and some of the creativity to turn that into a three-bed?

Zac Hendricks: Yeah, you bet. So yeah. So whenever we got this, we realized we could either tear this house down and really build two really nice houses. Or we could figure out how to make this house work. It was two-bedroom, one-bath. Those just don’t really rent that great. They do, but we prefer a three-bedroom, two-bath. And so we were trying to figure it out, my company, we have an in-house interior designer. So I just kind of put him on the task. I was like, man, we’ve got to figure out how to move some walls. I’ll work on the structure side of things, you do the interior part, make it look pretty. So he messed around with it, we went through probably five or six different design changes of how we’re going to do it. Finally, we figured it out, the best way to do it. We had to tear out two interior walls. So I’ll back up a little bit. I didn’t want to do an addition, a full-on addition, because I didn’t want to build out of the house and have to do all that. We can do that, but I’m in the business, I know how much it costs, I just didn’t really want to mess with it on this property. And so we said, if we’re going to do anything to add bedroom and bathroom, it’s got to be within the walls. So we tore out two interior walls and then were able to build a bedroom on the front side of the house and then build a bathroom in between the other two bedrooms — the original two bedrooms. And so — which we’re still in the process of that. So we just got done framing. But with that, we had to move front door, we had to add a window, change out a window, just to make it all right because the front door originally would have been right in the middle of the bedroom, of the new bedroom. So we had to move that over about 5 feet and put a window back in that bedroom for egress purposes. And then we ended having to reside the whole front. And then it’s in the historic overlay district of Conway, so if you’re doing anything to the exterior, it has to go through committee, a design committee. So they had a couple suggestions to make it look better. So with that, we ended up doing a little bit more than what we planned on. But it’s actually going to make it look really great. So can’t hate them for it. Yeah, so we’re in the process of the crawlspace, and it had a lot of foundation issues. Thought we’d fix them all on the front end, and then whenever we tore out some of the walls, found even more foundation issues. So we had to stop working on framing and work on the house for a little while. But now it’s actually a great house. Most of the lumber is new in that house now.

Tim Ulbrich: I guess it’s hard to go wrong when you mentioned the discovery of that extra lot that could be parced off that would have value equal to what you paid for it up front. So awesome bonus, but it sounds like it would have been a good property regardless, and obviously the creativity you had really helped in that. Blake, run the numbers for us on this one.

Blake Johnson: One of the questions you had is how did we finance it. So we paid cash for it, and then we went to a bank with an improvement list, and our total loan on this is going to be $85,000. So our projected rent is going to be around $1,200. The payment with taxes and insurance will be about $650. Our capex on $1,200 is $120, vacancy is $60, and then property management is $60. This is our best deal to date. And so just on the one home alone, we’re going to net profit around $316 a month. And that’s saving back for all those unknowns. So this is — normally we’re trying to get $100 a home, and this one, we’re getting 3x that amount.

Tim Ulbrich: That’s awesome. And I think for our listeners to hear two different examples — and obviously these are just a couple properties in your overall portfolio. And certainly want to mention that we’ve given two examples where the numbers are really good and you guys have been really successful overall. But you’ve also invested a lot of time, a lot of energy, a lot of effort, lots of relationships, lots of learning, lots of experience, lots of good connections. And so I don’t want to make this sound easier than it necessarily is but also don’t want to underestimate the work that you guys have put in to be successful and certainly I’m sure there have been some difficulties along the way. I do want to wrap up, Zac and Blake, I know we’ve talked about Bigger Pockets as a great resource. Other resources, books, podcasts, blogs, local meetups, what recommendations would you guys have for people that are looking to get started?

Blake Johnson: For me, the biggest thing, like we’ve mentioned, was Bigger Pockets. If you go on their website, they endorse several books. If you’re wanting to do your own landlording, Brandon Turner’s got a book that he wrote. They’ve got note investing on a home, so any facet of real estate you want to get into, there’s a book, there’s a blog or something you can get into. So if you want to educate yourself and get you a real estate degree or a doctorate in real estate, you can go on that website and come out pretty smart.

Tim Ulbrich: What about you, Zac? Other resources?

Zac Hendricks: Yeah, I mean, Bigger Pockets is probably the most. But part of it is getting inspiration from other people. So you know, reading books on it. We’re both — me and Blake are both big readers, so we’re reading about real estate as well. I went through a period where I think one year I read like 35 books just on real estate. And that was my college education for it, you know? I needed somebody else’s skills to kind of learn it. So there was a lot of them. I can’t name them all, but one of them I would say for inspiration purposes not for — I wouldn’t say it’s good for life goals, but it’s “Rich Dad Poor Dad.” It’s a great book for the overall goal of real estate and financial freedom and just really a business. But there were so many more good books out there. “Think and Grow Rich” is another good one. But there’s a lot of great books out there that people can read. But Bigger Pockets has a lot of resources. And honestly, going to Bigger Pockets and getting on the forums and saying, “Hey, I’m running into this issues,” I mean, there’s 1,000 people that can say they’ve had the exact same issue. So that’s where I’ve learned a lot is just saying, “Hey, I’m getting turned down on this,” or, “This isn’t working out,” or, “I’ve had this weird floor plan,” you know, people get on there and love to answer. And so that’s a great resource.

Tim Ulbrich: Great recommendations. We’ll link, again, to those in the show notes, Bigger Pockets website, Bigger Pockets podcast, they just launched recently a Real Estate Rookie podcast, which I think is fantastic. We’ll link to “Rich Dad Poor Dad,” Robert Kiyosaki, I think you mentioned “Think and Grow Rich,” Napoleon Hill, great recommendations. And I like what you said earlier, I can’t remember Zac or Blake, that you know, learning has its place and certainly there’s wisdom in getting that education, but I think — I’m only a property in, but I felt like I learned so much from that first property that the learning was helpful, but I felt like I was at that point where more books and more learning, I just needed to jump in and kind of figure it out and recognize that I was going to make some mistakes along the way and that it was a learning process and you build from those. And obviously here you guys are with a handful of properties and I’m sure many more ahead of you. And each one I’m sure the process gets a little bit more refined. I love seeing successful partnerships like this, you know. Not to say there hasn’t been challenges along the way. If there haven’t, awesome. But I’m a big fan when there’s shared values, when there’s shared vision and there’s good relationship, the value that can come from a partnership, especially when you have complementary skill sets and just being able to bounce ideas off of one another, to be able to move that forward, especially here as you guys have a shared vision for what you’re trying to do as your why behind real estate investing. Really cool to see and highlight this as an example. So Blake, Zac, really appreciate you guys taking time to come on the show and share your story with the YFP community.

Blake Johnson: Appreciate you having us on.

Zac Hendricks: Yeah.

Blake Johnson: It was a blast.

Zac Hendricks: Absolutely.

 

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YFP 167: Must Know Real Estate Terminology

Posted on by yfpadmin


Must Know Real Estate Terminology

David Bright, a pharmacist, pharmacy educator and real estate investor talks about why he views real estate investing as an important part of his financial plan, how he got started in real estate investing, and key real estate investing terms and concepts.

Summary

David Bright teaches at Ferris State University and loves his job, so the idea of getting into real estate investing didn’t come about as a way to retire early or to escape a career he didn’t enjoy. David’s family dabbled in real estate properties and he saw how those properties supported his family members’ retirement income, especially after the mortgage was paid in full. David and his wife decided to pursue real estate investing as a way to diversify their retirement income and to fund life experiences such as vacations along the way.

David shares his journey in real estate investing which began with a fixer-upper he and his wife purchased in 2009. They sold the property 5 years later for more than what they paid for it. They moved to Michigan and purchased a HUD foreclosure condo that they did some work to and were able to rent out when their family outgrew the condo. House prices increased in their town so they looked elsewhere for their next property and purchased a home in Muskegon, Michigan that they were able to BRRRR (buy, rehab, rent, refinance, repeat).

David also breaks down some key concepts and terms in real estate investing like the 1% rule, BRRRR, appreciation and short sale, among others.

Mentioned on the Show

Episode Transcript

Tim Ulbrich: David, welcome to the show.

David Bright: Hey, thank you.

Tim Ulbrich: So long time in the making, you and I have known each other for a long time, all the way back to our PGY1 community pharmacy residency days here in Ohio. And we’ve had an opportunity to know each other further in the academic pharmacy circles and more recently with some real estate investing opportunities. So really excited to have you on the show to share some of your pharmacy journey but also some of your experiences in real estate investing as we really use this episode to highlight some of the key principles and terms of real estate investing. And we’re going to do that through some examples and stories. So David, before we jump into the weeds on the real estate investing part of the episode, give us some of your backstory in your pharmacy career.

David Bright: Absolutely. And thanks for having me on. This is a lot of fun, and it’s fantastic to see what Your Financial Pharmacist has done over the past few years to help people in their journey to financial freedom, financial independence and financial literacy. So yeah, as you mentioned, the pharmacy career story, we both went through the residency route. I had been involved in community pharmacy practice really since I was 16. One of my first jobs was a pharmacy technician in a drugstore at 16. And worked in drugstores through pharmacy school and community pharmacy residency, so that was really my passion. I love those opportunities to interact with patients and that kind of direct patient care where you’re having a lot of conversation, a lot of educational opportunity, a lot of that direct patient care that I really loved at a community practice. That led me to an academic position where some of those same kind of teaching aspects of community pharmacy certainly play into that academic pharmacy and also got to focus research on pragmatic implementation and improvement of non-dispensing pharmacy services that often took place in a community pharmacy or in am care. So that was a lot of fun. Spent five years at Ohio Northern and then since then, have taught at Ferris State University in Michigan.

Tim Ulbrich: Awesome. And got to give a shoutout to the Polar Bears. I actually hear from — as a Polar Bear alum myself, every once in a while, I’ll hear from other Polar Bear alums that say, “Hey, I love when you give the Polar Bears a shoutout on the podcast.” So here we are with another ONU connection. So great background, David, in terms of the community residency, the transition to the academic world, the work that you’ve done in advancing patient care services. And we’re going to approach this episode — we are both educators in terms of our work. Obviously I’m at Ohio State, you mentioned you’re working at Ferris State. But also just how we approach this topic, whether it’s financial education, literacy at large, here we’re talking about real estate. We are both teachers, and we know that we could talk about terms and go through them one-by-one and define them, but I don’t think that sticks well, right? We know that from our experience. So we’re going to use stories, we’re going to use examples, to really hopefully make some of these terms and concepts come to life. So David, first off, why real estate investing? You’ve got a full-time job, you’re busy. Why take on another job, side hustle, whatever you call it, in terms of the time it takes but also what this potentially means for your financial plan and your family?

David Bright: Yeah, that’s a great question. For me, I love my job. I love teaching Ferris, and so I’m not one of these folks that is looking to escape that and to do something else. Like I really love what I do. At the same time, I don’t want to be teaching at Ferris when I’m 85 years old. I hope to retire at some point. So my wife and I, we both had kind of extended family on either side of the family that have dabbled in owning a few rental properties and just kind of seeing that from a distance and hearing stories of how they bought a property or two in their 20s and 30s and with a 30-year mortgage, by the time they were retirement age, they had a paid-off rental house. They saw that as a way to diversify their retirement savings. And that just kind of stuck with me. It made a lot of sense as a diversification plan. And you know, in addition to that, one of the things they shared with me is that at the end of the month, if you can buy well, there’s hopefully a little bit of money left over after between the rent that you take in and the mortgage payment that you pay. And that little bit of money can fund other things. And my wife and I, we really value those experience, memory-making opportunities with the family. And so we thought, if there would be a little bit of that cash flow left over at the end of the month, we could save that up and help with the cost of vacation or other things. So not purely as a retirement play, but just kind of as a diversification for our overarching financial plan. So at the same time, you mentioned that some of this real estate work can be time-intensive if you let it. For me, I’m not remotely handy. Like I’m barely qualified to change a light bulb. Like you’re not going to find me swinging a hammer and doing things, like that’s just not me. I can’t do that. I’m a pharmacist. And so I’ve come to learn that there’s some things that I’m good and there’s some things where I’m not good at all. And so one of the nice things about real estate investing is that you don’t have to be good at swinging a hammer. Like you don’t have to be able to hang cabinets or do electrical work or any of the other things. Like by buying properties or looking at things that don’t need a ton of work, like what we’ve done, it makes it just a lot less intimidating when we’re hiring a lot of that work out. Like I’ve really not done much more than painting myself in the evenings, which is I think something that a lot of folks have done. So it’s been nice to find a way to diversify our retirement without it taking a ton of time.

Tim Ulbrich: Yeah, and one of the things, David, that I like about that — and certainly for folks that are handy, and I’m with you in the non-handy camp, probably even to a greater degree. You know, I’ve learned to accept my limitations and lean on my strengths, which are not being handy. But I think for folks that are, certainly if it’s something you enjoy and perhaps there’s some cost savings, great. But one of the things I’ve really enjoyed observing your path in real estate investing is that you really have done a nice job of building a system and a process that factors that in, you know? And really, I would argue then even becomes more scalable because it’s not dependent on you, which could work with one or two properties. But as you’re talking about longer term goals and a bigger portfolio, building a system and a property, analyzing deals and including things like property management fees, I’m working with contractors, and not all of that depending on you I think reminds me of how somebody builds a long-term successful business that is positioned for growth. So I think folks that are just starting, as you’re beginning this path, is there an opportunity to begin this path with some of that and some of the end in mind? And that may perhaps be minimizing some of your role and involvement in that. So David, you shared a little bit of the why real estate investing. So let’s jump into the how did you begin. So talk us through that first property. And then as you’re talking through that, I’ll pick up on some of the terms and concepts, and we’ll break some of those down after that.

David Bright: Yeah, definitely. Even when talking about properties in general, like it seems like there are very few people anymore that buy a property when they’re in their 20s and they live there for 60 years and then they sell it. Like most people over time are going to own several houses, at least most people in this podcast are probably going — or listening to this podcast — are going to own several houses over time. So I think getting in that mindset of what am I looking for in these. When my wife and I, we bought our first house in 2009, and when we did that, that was at a time in the market when those like house flipping were starting to come on TV, and it was like, oh, that would be fun. I could do that. Even though I totally — like no. But we thought we would look for something that was a little bit of a fixer upper. And looking back on it, a house that needed a little bit of paint probably wasn’t the definition of a fixer upper. But that was what we looked for. And so we bought a short sale property in 2009. And over the few years of living there, kind of like most people do, we fixed it up a little bit over time. We painted it, replaced some carpet, finished the basement, those kind of things. And that was what I would consider a live-in flip because we bought the house, we fixed it up while we lived there, and then when we moved to Michigan about five years later, we were able to sell it — in between the market improving a little bit and these fixes increasing the value — we were able to sell the house for more than what we paid for it.

Tim Ulbrich: OK. So the live-in flip, you had that for about five years, is that correct?

David Bright: Correct, yeah.

Tim Ulbrich: OK. And then I know we’re not attempting to play accountant or taxes, so disclaimer, this is not tax advice. You should consult your own accountant. But talk to us broadly about what does that mean for folks that are either in a live-in flip situation or considering a live-in situation? You mentioned being able to sell that, and I believe you sold it for tax-free profit. So is there a certain time period that folks need to be thinking about in terms of the time they’re in that house before they sell?

David Bright: Yeah, so again, I’ll repeat the disclaimer that a tax attorney or anything like that.

Tim Ulbrich: You taught me that disclaimer.

David Bright: Well, and even thinking through like if people listening to this in the future should certainly consult professionals at the time. But at least at the time that we were doing this, the advice that we got was that if you live in the property for at least a two-year period and then two out of the last five if you keep it as a rental or something like that, that two-year mark is when it becomes tax-free. So you’re right, the folks that are out in these house flipping, they’re probably paying quite a bit in taxes when they buy and then immediately resell these houses. But by doing it slowly, living in the house for a few years, that became essentially tax-free gain, which helped us to buy the next house.

Tim Ulbrich: It’s amazing, David, right? When’s the last house flipping show — when did you watch the last house flipping show that talked about the taxes they paid on the properties? Never mentioned, right?

David Bright: Yeah, exactly. Exactly.

Tim Ulbrich: So you mentioned also that you bought it via short sale. So I want to break that down for our listeners. What is a short sale?

David Bright: Yeah. A short sale, they seemed to be more prevalent back in that ‘08-’09-2010 kind of realm because a short sale is where someone has a loan on the property that the loan balance is greater than what they’re able to sell it for. And in that situation, a lot of people refer to that as being upside down on the property because you owe more than it’s worth. And so when you go to sell that property, your option is either to bring that extra money to closing or if you don’t have the money to bring to closing, then the bank can agree to accept whatever you sell it for as payment in full, and they consider that a short sale.

Tim Ulbrich: OK.

David Bright: So it’s presumably going to damage your credit pretty good because you’re not paying back the loan in full and all those kind of things. So I can’t really recommend it for people as a way to sell a house unless you’re really backed into a corner, which is the situation with the seller. He had bought this house as a brand new house just a few years before, so it worked out really well in the buyer side because we were able to get a practically new house that really just needed some kind of minor fixes, but that’s also the danger of some of these $0-down loans and some of those things that were going on back at the time.

Tim Ulbrich: And that typically — correct me if I’m wrong, David — that typically is a step before foreclosure, right? The short sale?

David Bright: Correct, yeah.

Tim Ulbrich: OK. So you mentioned the live-in flip in Ohio. You’re there for five years. And then you had alluded to your move up to the state up north not to be mentioned. So what was the game plan when you moved to the state up north? What did you guys do from there?

David Bright: Yeah, so when we were moving, we didn’t really know west Michigan at all. And so the advice that we were given is if you don’t really know the area, there’s a lot that you pay when you go to sell a house in terms of realtor fees and closing costs and all that. So if you’re not absolutely sure you want to be in that house for awhile, you probably don’t want to buy and then immediately move and buy again. So the advice we got was if you’re going to move to a new town, just rent for awhile, get to know the town, figure out where you want to be, and then buy.

Tim Ulbrich: Yep.
David Bright: And that made a lot of sense until we started looking at the math. And specifically in west Michigan, we were looking at homes that we could rent, and it was at the time in the neighborhood of even upwards of $2,000 a month to rent a house in the area where we wanted to be. But then we looked at there was a condo complex just barely outside the area where we wanted to be, and there was a three-bed, two-bath condo for sale for $55,000. And so we thought, two years of $2,000 a month seems remarkably similar to just buying this $55,000. So we thought, OK, we’re going to buy the condo.

Tim Ulbrich: Math sounds good.

David Bright: So we ended up in the condo instead of renting.

Tim Ulbrich: I’m assuming foreclosed property had some work to be done. Did you put work into that? And was that an additional investment?

David Bright: Yeah, this property, the short sale kind of got us warmed up to doing a little bit of work, and so we were looking for that same kind of thing. We found a foreclosed property that was actually a HUD home. So HUD homes are where the prior owner would have had an FHA mortgage. And when there’s a foreclosure on an FHA mortgage property, the government then takes it and sells it through the HUD process, through HUDHomeStore.com. The nice thing about a HUD foreclosure is that there’s some provisions in there to help owner occupants buy these. So they’re not swooped up by investors and that kind of thing. So as an owner occupant, we didn’t have mountains of cash and some kind of big track record of house flipping or anything like that to really go in and be competitive in that space. But we were going to live there. So we thought, this is a good opportunity to buy a foreclosure. It needed some drywall work and it needed all new appliances and new flooring and paint and some of those kind of things. So it was a decent step up but still didn’t require a ton of work. It wasn’t a super intimidating failed foundation and holes in the roof or anything like that like you see on TV. It was just a foreclosure that needed a little bit of work, and so we had a great agent that helped us buy the place. The agent knew some great contractors that we were able to hire to come in and do a lot of the work before we moved into it. It ended up being a great way to get into a much more affordable living situation than a $2,000 a month rent.

Tim Ulbrich: And for a moment, I want to put some of the pieces here together. You know, you disclosed earlier that you’re not necessarily handy. And even though this property, as you mentioned, didn’t require massive work, you still mentioned drywall, other things, had to work with a contractor. And I think just that step, right — I know for me hearing that, for folks that might be starting this for the first time, that alone seems somewhat overwhelming of, OK, I’m buying a property that needs work. I’ve got to find a contractor, I haven’t hired a contractor before. Who do I trust? Do I get multiple bids? How do I even navigate this? Am I going to get ripped off? So what advice would you have for folks — you mentioned an agent connection, maybe that’s a key people can pick up on. But for the folks who are looking to get some work done as a part of a model like this or another investing scenario, how can they approach that contractor relationship to find somebody hopefully that is trustworthy, that is quality, that’s reasonably priced, with the idea that perhaps it can continue to work with that person in the future?

David Bright: That’s a great question because I think we’ve all heard the stories of some contractor that did terrible work or took the money and didn’t show up or all these kind of horror stories, right? But we found the opposite. We found — like the quote that I heard recently is that rockstars know rockstars. And so by finding a fantastic agent, that fantastic agent had a library of different contractors. Like hey, you need a plumber? Call this person, tell them I sent you. They do fantastic work. I’ve recommended them several times, they’ve done work on my home. Everybody loves this plumber. Like great, that just got really simple. So we found a plumber that way. And same with someone that could do drywall and lay flooring. I’d asked that same kind of question, they said, “Hey, call this person. They’ve done work for us, they’ve helped other people.” So it got really easy by finding that first good person and then I’m just a big believer in referrals like that because yeah, you can Google and I don’t know what you’re going to find. But referrals are really powerful for us.

Tim Ulbrich: Yeah, and I think relationships, referrals, I think this is where the value of like local real estate meetups can come in. And Bigger Pockets does a great job of this, and you can find some in your community. But I’m with you, like if there’s somebody that I value and trust and have had a good relationship and they are able to recommend somebody, and then you’re starting that conversation with, “Hey, I know David, and David recommended you.” That all of a sudden builds some of the expectations of that continued good work on the part of the contractor. So I think that’s great input and advice. So you renovate your condo, David, what’s the next move then for you as it relates to your investing journey but also the personal living situation?

David Bright: Yeah, so we — at the point where we had lived in the condo for about a year, we were thinking that my kids were going to start school and we were thinking we probably want to be in a different school district and want to be a little bit closer to work, wanted to cut down the commute time and some of those kind of things. So while the condo was great for us for that season, it was a season where it wasn’t really as good of a fit anymore, so we were able to find a house and buy a house that was a better fit for us at that point, particularly after getting to know the area for some time. At that point, we thought, well, we’ve been observing family that have owned a few rentals, and it was good for them. We thought, it’s a pretty big step to go out and buy a rental property. It’s a much smaller step to just not sell a house and instead, try it out as a rental because we figured if it didn’t work out, we could always still sell the house. Like it just felt like about as low risk as we would ever have. And even a lot of the finishes and things that we did to the property, one of the recommendations that we got from, again, one of just the rockstar real estate agents that we worked with is when you’re fixing up properties, particularly at that kind of price point where for a $55,000 condo, you’re not going to go in and do $15,000 worth of super high-end granite countertops or something, you know? The quote that we heard was go Chevy, not Cadillac.

Tim Ulbrich: That’s great.

David Bright: That helped us just to kind of keep the budget in mind and some of that. But with that, at the end of all that fixing up, it was in pretty decent shape. We thought, you know what, let’s try it. Again, going back to the just busy world of a pharmacist, we didn’t really know where to start with all that, so that’s where you already mentioned Bigger Pockets, and I had found Bigger Pockets just kind of Googling around online looking for how do you rent out your condo, like trying to learn this. Found a few books and just tried to figure this out kind of in the evenings, talking with my wife. And we knew of a couple people that were looking for a place to rent, so we kind of started there, just friends of friends, just kind of putting the word out that we’re looking to do this. But after about a month, we couldn’t really find anyone to rent the condo. And we thought, this isn’t going well, and it’s probably because we’re trying to do this on the side. We’re just busy people, we just don’t have the time for it. So that was our point where — just kind of like with construction work, you don’t want me replacing countertops, you don’t want me like flooring, none of that. So we had found a professional to do that. And we just did the same thing here, we found a professional property manager that was, just like we’ve been saying, a recommendation from another rockstar, and we found a rockstar property manager. She came in and met with us and walked us through what the process would be like. She took some photos and a few days, she had a showing where she bought three people through the condo. Two of the three signed an application, one of the two put down a deposit immediately. And right away, we had a tenant moving into the property. And from a numbers standpoint, we were — the property manager was able to get $150 more a month than what we couldn’t get and the property manager fee to do that was $130 a month.

Tim Ulbrich: Winning.

David Bright: Yeah. Like she ended up doing all of the work and made us more money than us trying to do it all ourselves when we just clearly didn’t have time to do it ourselves. So it ended up being a fantastic fit.

Tim Ulbrich: That’s awesome. A couple things I want to break down there, and you didn’t mention the 1% Rule directly, but I want to bring that forward as I know people may have heard that before or if they’re working at a similar situation where OK, as you had mentioned, it’s easier to not sell than perhaps buy your first rental. What is that 1% Rule as folks are trying to just gauge — and of course this is market-specific and so many nuances, just like we talked about with many of the parts of the financial plan — but as folks are trying to determine OK, what might be rent? What am I currently — what’s the house worth? How do you even begin gauge roughly what might be a valuable rental situation that somebody might determine to keep the property and turn it into a rental?

David Bright: Yeah, the 1% Rule is one that I know we’ve talked about, and it’s stuck with me over time because I first heard it from my wife’s grandfather who told me that when he was buying — like he had heard this 1% Rule. When I was later Googling around on Bigger Pockets and I read it in another book that this 1% Rule. So it’s really stuck with me. And that’s where, just for round numbers, if you have a house that’s worth $100,000. If you’re able to rent it for $1,000 a month, 1% of the value of the house every month is rent. That’s a decent rule of thumb of the math will probably work so that your rent will cover the mortgage and then some of the additional expenses like the insurance and property manager, some of those things. And you’re right, it’s a really good disclaimer that that doesn’t work in all markets, it doesn’t work in all situations. But it’s a nice rule of thumb that you know, if there’s a pharmacist out there that has a $500,000 house that they can rent for $1,500, that’s probably not going to cover the mortgage.

Tim Ulbrich: No bueno. No bueno.

David Bright: Probably not going to work. But in our case, it was a $55,000 condo and so if it rented for a little over $1,000, that more than met the 1% Rule and that was kind of how the math worked out. At the end of the month, there was a couple hundred bucks left over between the rent that came in and then the mortgage that we paid, which is kind of for us was some safety. I know a lot of pharmacists are pretty risk-averse and so we thought if there’s more money coming in through the rent, at the end of the month, that will help to take care of what if the furnace goes out? Or what if the toilet gets clogged? Or what if all of the things that — like what if a lightswitch goes out? Like I can’t fix that. I have to hire someone to do that. So to have money for those kind of expenses that would come up — and like you said earlier, hopefully we could save some every month and then vacation or whatever using that.

Tim Ulbrich: Yeah, and we’ll get into in the future — again, focus here we want to introduce some terminology– but you’re mentioning some important pieces that I think when folks are analyzing a deal, I think it’s easy — almost like when people are looking at I currently rent versus what would my mortgage be and they forget to think about property taxes, homeowner’s insurance, what about all of the lawn equipment I need, taking care of my own, increasing utilities, the list goes on and on, right? Here, same type of thing, you know, as you’re looking at a real estate investment property, what are the things that you need to be thinking about in terms of repairs that need to be done, big projects over time, a roof, water types of issues, if you think about vacancies, all of those are factored in when you’re analyzing a deal. And hopefully the plan is that you’ve still got some positive cash flow after that. So David, we started with your live-in flip, we talked about the condo that you were able to do some renovations on and then turn into a rental. What was the game plan after that?

David Bright: Well that first rental was a great learning experience for us. And as much as the 1% Rule and some of the math — and certainly as pharmacists, we can get really nerdy into the math real fast, right. And there’s some great resources out there that can help that. You know, another shoutout to Bigger Pockets, they have some great kind of calculators and things that help you to make sure that you’re factoring in all of those expenses like property management, like the inevitable vacancy that you will have at some point, like the general repairs and the larger expenses, like taxes and insurance. But beyond all that, part of our goal with this condo was — and again, you and I are educators and we really just wanted some education in this. And we figured this is the best way to do it. So in our minds, it didn’t have to be a fantastic investment that would make all the metrics. It was really just how do we learn this to see if this is a fit for us as a part of our long-term financial plan? And that helped us to learn even other things like I didn’t know at the time that there were rental inspections and things. And once we hired the property manager, the property manager helped walk us through that and some of the local things that you need to know. And again, by bringing in a professional rockstar, like she was able to help make sure that we had all of our ducks in a row, that this was all done appropriately, correctly, safely, which again, pharmacists in health care definitely want things to be safe. And so that really helps. There’s a lot of learning that went on with that condo. And so after owning that for a couple years, it really seemed like it helped us to build some confidence that we could do this again. Over time, we started thinking about what point is it worth trying to do this again?

Tim Ulbrich: Sure.

David Bright: Again, this rockstars know rockstars? We were looking around at other places and trying to find people that were doing this and learn from other people. One of the things that happened in Grand Rapids, where we live, house prices just accelerated like crazy, which I think we had all kind of seen from about 2015-2020 that house prices have gone way up across the country. And certainly Grand Rapids is no exception.

Tim Ulbrich: Yeah, and I remember, David, seeing Grand Rapids like on “Top Places to Live in the Country,” raise a family, I’m guessing that contributed to it as well.

David Bright: Oh, for sure. Yeah. And then shoutout to Grand Rapids, it is a beautiful place. And as far as those memory-making experiences, we were out on the kayaks with the kids last night and just a lot of fun things to do around here. So I know growing up in Columbus, I also at one point referred to it as a state up north, but now that I live here, it’s really beautiful. So the good side was some property appreciation. The bad side was it was hard to find these 1% properties where it would make sense as a rental. We didn’t really want to go out and buy a $250,000 house that would rent for $1,000 or $1,500 a month. It just didn’t make sense. So a friend introduced us to the city of Muskegon, Michigan, which about 45 minutes or an hour from where we live. And little community out by Lake Michigan, great little place, and there were some properties there that met this 1% Rule. And so we were able to buy a house out there that between the short sale that we bought first and the condo, we’re getting a little more confident in being able to fix some things. This house needed a little bit more work, it needed a bathroom remodel, it needed paint inside and outside and flooring and some other fixes like that. But I guess we’re getting desensitized to it or something like that over time. And I think also, there’s some confidence in knowing other rockstars that can do a lot of this work. We were able to hire some contractors and buy a property. So a friend introduced us to what I’ve heard referred to as a tired landlord, someone that had rented out the house and just was done with it, you know? And I don’t know what the situation was, if they had an eviction or something like that that just soured them to the property, but they were just done with it and wanted out. And so we were able to buy it in still pretty dirty condition, it needed some work, and we were able to hire some contractors to go in there and fix it up. And so this property — just as an example from a numbers standpoint, we were able to buy a house for just under $30,000 and put roughly $15,000 into repairs. So we were all into it for a little over $40,000. And then at the end of that process, it appraised for just under $60,000. So that helped us because we were then able to refinance the property at 75% loan-to-value — and we can certainly walk through a lot of these terms in a little more detail — but 75% loan-to-value refinance. We were able to get back out of it almost every dollar that we had into the property from a purchase and a rehab standpoint.

Tim Ulbrich: That’s awesome.

David Bright: Yeah, that also felt like a way to reduce risk, again, pharmacist that doesn’t love a lot of risk, because then we didn’t have to save for years and years to make this enormous down payment on a house that might have a little bit of return every month. We didn’t have to have a lot of money into this property. But yet one more aspect of a long-term financial plan.

Tim Ulbrich: Well, and then if this works out as planned, here’s a great example, and we’re not trying to say this is all roses and cupcakes, you know, there’s a lot of education, a lot of relationship-building, a lot of things you did to make sure that this was a good deal and mitigate your risk, and there’s always things that could be unforeseen. So I don’t want folks walking away thinking, alright, let’s do this tomorrow. I mean, if somebody’s ready, awesome. But making sure we’re looking at both sides of the equation. So here though, David, this is a great example, I remember hearing about the BRRRR concept on Bigger Pockets, and it was one of those moments where I almost drove my car off the road. You know, one of those like Aha!, like oh my gosh, I just never being exposed to real estate investing, wasn’t even thinking this way, almost like reading “Rich Dad Poor Dad” for the first time. And then hearing this and the concept of getting all of your money or close to all of your money back out and being able to repeat that process potentially and grow the portfolio while you still have some built-in equity in the deal. So break that down for us briefly. What is the BRRRR model as folks may be hearing that for the first time? And I think the example property you just walked through is a great example of it.

David Bright: Yeah, so the BRRRR model — and I would agree, this is one of those things just kind of reading Bigger Pockets or part of my work here — for those that know Michigan, I live in Grand Rapids and Ferris State is located in Big Rapids, which is a city about, depending on where you live in town, it’s about 30-45 minutes away. So with that kind of drive, had some time to listen to some podcasts. I think a lot of folks listening to this podcast are probably in the same boat where you’re listening to things and trying to learn. And yeah, the BRRRR method also really struck me. And that’s that BRRRR: Buy, Rehab, Rent, Refinance, and Repeat. So the goal here is to buy a property that for whatever reason, whether you get it from a tired landlord or you buy it as a foreclosure or you buy it as a house that needs work or any or all of those, you buy it at some kind of discount because it’s something no one else wants to touch or something. You then rehab it, where you go through and you hire a contractor to do painting or whatever other work. At the end of that process, it is an attractive house where you can rent it out. So you can then rent it out, tenant, property manager, all those kind of things, refinance it at that point where you’re typically able with most banks to borrow 75% loan-to-value on what the property is worth. So not necessarily what you paid or what you paid plus your construction costs or anything like that, but what it appraises for that day. You can borrow 75% of the appraised value. So refinancing it allows you to get some of your investment back out of it and by doing that, if all the math works really well like this example — and like you said, not everything is rainbows and unicorns — but in this example, it did work pretty well where we had a little over $40,000 into it and it appraised just under $60,000, so 75% of just under $60,000 got us right just about all of our money back out of it.

Tim Ulbrich: And I think, David, this example really highlights well, you mentioned some of the things with loan-to-value, and if I’m understanding you correctly, with a 75% loan-to-value in a cash out refinance, you’re essentially then remaining 25% of the equity in the property. So you know, a lot of times you hear people talk about leverage with real estate investing. And for those of us that certainly want to make the most of an investment opportunity but also don’t want to find ourselves upside down on a mortgage, in this situation, you’ve got some built-in equity in the home so if something were to change market-wise or you run into a 2008 example of the market dips, you know, you’ve got some protection in there. You mentioned getting your cash back out in this deal, and obviously there’s fees as a part of the process that need to be considered so you can hopefully continue on with this. And then obviously from a rent situation, you want to make sure that it’s cash flow positive. So here, it checks all of those boxes. And I think, David, correct me if I’m wrong, but for those listening hearing this as one example and one path forward that they may consider, the rate limiting step here beyond just the understanding of the process and feeling comfortable and confident would be having that upfront cash to purchase the property, correct?

David Bright: Yes. Yes, because a lot of times, if you’re buying a house that is in pretty rough shape, it may be difficult or even impossible to get a traditional mortgage on that property. So certainly you see the folks on TV that are trying to flip these houses in California or something, they’re spending $1 million on these houses, that’s not something that I’m able to do.

Tim Ulbrich: Right?

David Bright: But you know, buying a house under $30,000 is a very different story.

Tim Ulbrich: Yeah, and I think that’s just something for folks to consider and I think why the first one and this example or this model may be the most difficult. But if you’re running this right, the numbers look good, once you’re able to save up for that first one. And obviously as we talk about all the time on the show, so important to reinforce here, real estate investing for those that are considering it should be looked at in the context of the rest of the financial plan. So where are you at with your student loan debt? Where are you at with your emergency fund? Where are you at with your retirement, credit card debt, other goals? And does this make sense, in this example, to be saving up a bunch of cash to purchase this property? And for some, the answer may be yes, and for others, maybe it’s no for the time being. So we have — and we’ll hopefully revisit, David, at a future point on another episode, I think we’ve thrown a good amount of information at the listeners, but you know, we’ve kind of dodged around some of the benefits of owning real estate and rental properties. Obviously the opportunity for cash flow, of course the appreciation of the properties, we haven’t talked about in detail the tax benefits, but certainly that’s a consideration, the fact that somebody else is essentially helping pay down the mortgage, being able through the cash flow to achieve other financial goals, perhaps even having an opportunity for diversification of income and if folks are predominantly saving in a 401k or a 403b where those funds are essentially locked down to 59.5, you’ve got some options here in real estate. And so we’ll come back and approach some of those more in the future. One of the things I want to wrap up with, David, is you mentioned Bigger Pockets as a resource and the Bigger Pockets calculator, which I certainly would attest to as well. Are there any other resources that you would recommend either a great book, a website, a community that really has been instrumental in your own journey that other folks may be able to apply as they’re getting started?

David Bright: Yeah, you know, we both reference Bigger Pockets, and I think podcasts are just really accessible for folks with a commute or things like that. So I would definitely recommend that. You’ve also mentioned the “Rich Dad Poor Dad” book, which I think really helped me to see, just see investing and a financial plan in a different way than I had previously thought, so that was another big resource that helped. And then “The Millionaire Real Estate Investor.” I believe that’s a Gary Keller book, that’s another one that was a little more nuts and bolts as far as how to look at properties, how to do some of the math and certainly pharmacy math nerd, I dove into some of that. And so that was helpful. I thought of the “Rich Dad Poor Dad” as more of a mindset book.

Tim Ulbrich: Yes.

David Bright: And “The Millionaire Real Estate Investor” as more of a tactical book. And so both of us, an audiobook here and there on the commute, and it was helpful there. I think that one of the other things that helped me to learn from just a mindset thing too is that I think some of this can certainly be a lot of — it can just be intimidating for people with a full-time job, busy life, family, kids, all those things. Like it can be certainly intimidating. And both of those books and then talking with other people in the area, other people doing this — going back to the rockstars know rockstars — talking with real estate agents and contractors, like one of the things that oddly enough, has helped us too is buying a house that’s an hour away.

Tim Ulbrich: Yeah.

David Bright: I’m not tempted to go drive by it and try to paint a room or something. Like I’m able to really detach from it and not let it take a bunch of time, which has been really, really helpful because I think that, again, typical pharmacist, little bit of a control freak. It’s hard to detach from some of these things, but it’s just been really healthy I think to do that and to trust property managers, to trust contractors, and yeah, just it allows it to be something that we can do as a part of our financial plan without it really taking a ton of time.

Tim Ulbrich: And I think that’s a nice recap of what we had talked about before briefly of I think one of the benefits of long distance real estate investing, whether that’s an hour or a different state away, is it really helps kind of force your hand in building some of the systems and processes that hopefully pull you out of the equation in some regard. Again, I’m thinking about this as somebody would be building a business and thinking about with the end in mind. The other resource — and actually one that just came to mind as I was just mentioning that Bigger Pockets does have a book on long distance real estate investing. So if folks are in a market where deals are harder to find and you’re looking at other areas of the country, I recommend that resource. Another one, David, I know Bigger Pockets just came out with I think it’s “The Real Estate Rookie” podcast, which I’ve enjoyed listening to. I know they’ve done so many episodes on their main show now and sometimes those stories, for new investors may seem just massive and overwhelming as people are talking about having 150 properties and their journey over the last 10 years. And I think that “Real Estate Rookie” podcast is a good segway introduction for folks that are just getting started. So David, really appreciate you taking the time to share some of your journey but also help break down these concepts. And we will link to some of the resources that we’ve mentioned in the show notes. And as a reminder to the listener, you can access show notes for this episode as well as any other episode, by going to YourFinancialPharmacist.com/podcast. Find the episode and in there, you’ll find a transcription of the show as well as a link to the resources and notes that we talked about. And don’t forget to join the Facebook group, over 6,000 members strong, pharmacy professionals all across the country, committed to helping one another on this path and goals towards achieving financial freedom. And last but not least, if you liked what you heard on this week’s episode, please leave us a rating and review on Apple podcasts or wherever you listen to your show each and every week. Have a great rest of your day.

 

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