YFP REI 109: How Two Pharmacists Pay No Income Tax through Real Estate

Pharmacist real-estate investors Julia & Brad Myers talk about what inspired their journey in real estate including the unique aspect of tax deductions and savings in the short-term rental market.

Episode Summary

Just like pharmacy, real estate is a big umbrella. You can talk to 10 different people and hear 10 different ways to be involved in real estate. From dipping your toes in small investments to diving in headfirst with larger investments, the spectrum of involvement is large. However, to get into it, you simply have to start somewhere, understand some of the basics, and most importantly, figure out your why. Joining us today are Julia and Brad Myers, here to talk about tax deductions and savings, as one of their aims for real estate investing. We talk about what inspired their journey in real estate and unpack the unique aspect of tax deductions and savings in the short-term rental market. Julia talks about exchanging potential rent revenue for depreciation and potential appreciation and breaks down the cost segregation study and what it did for depreciation. To find out more about why they decided on their particular real estate journey, don’t miss out on this episode, so tune in now!

Key Points from the Episode

• Julia and Brad share their backgrounds, both personal and pharmacy journeys.
• An overview of their real estate history and their goal and focus in this realm.
• Their process for taking the leap into the real estate world: reducing the tax burden.
• They unpack the unique aspect of tax deductions and savings in the short-term, rental market.
• Julia elaborates on their catalyst: Tax Tuesday.
• The story behind the decision-making of their first rental property. 
• We discuss data, particularly as it relates to rent per day.
• Exchanging potential rent revenue for depreciation and potential appreciation.
• Julia breaks down the cost segregation study and what it did for depreciation. 
• An important piece of information: using their tax savings for the down payment of their next property.
• Rent income in the off-season and taking on an insurance contract.
• Becoming a real estate professional: how Julia is pursuing other ways to unlock depreciation or active income. 
• We talk about numbers in the medium-term rental space.
• Why it is essential to do research on location.
• How they wrap up this aspect of their business into their family plan and generational wealth.
• Julia and Brad’s take on our final three infusion questions.

Episode Highlights

“For us, it was less about cash flow. It was less about quitting a day job. It was more about how we have better wealth management from a tax perspective. Short-term for us is how we got into the game of real estate.” — Julia Myers [0:06:40]

“Appreciation is not the opposite of depreciation. They’re two very different things.” — Julia Myers [0:09:59]

“If you’ve ever set up an Airbnb, do not give yourself a week. Give yourself several weeks or weekends, because it just takes way longer than it should!” — Julia Myers [0:30:18]

“It is a business at the end of the day, because in terms of the home, which is hard to detach sometimes between the love for your home and treating that as a business.” — Brad Myers [0:31:51]

Links Mentioned in Today’s Episode

• Julia Myers on LinkedIn 
• Julia Myers on X
• Brad Myers on LinkedIn 
• YFP 311: Raising Money-Savvy Kids
• YFP REI 96: Managing Risk and Taxes through a Real Estate Team with Thomas Castelli
• YFP REI 54: Using Cost Segregation to Optimize Real Estate Tax Benefits
• YFP REI 18: Tax Strategies for Real Estate Investing
• BiggerPockets
• Rachel D. Gainsbrugh on LinkedIn
• Realtor
• Zillow
• Jumpstart Your Tax Savings On-Demand Course
• Amanda Han on LinkedIn
• OBX Landing
• Your Financial Pharmacist
• YFP Real Estate Investing Facebook Group

Episode Transcript

[INTRODUCTION]

[0:00:05] NH: Welcome to the YFP Real Estate Investing podcast. I’m Nate Hedrick.

[0:00:09] DB: I’m David Bright. We’re both pharmacists and real estate investors who believe that real estate investing does not have to distract from a meaningful career in pharmacy. 

[0:00:17] NH: Each episode we share stories that educate and inspire pharmacists to leverage real estate investing as a part of your financial plan. Hey, David. How’s it going? 

[0:00:26] DB: Hey, good. Thanks. How you doing, man? 

[0:00:27] NH: Good. I’m excited. We’re talking about short-term rentals again, which makes me think of vacation, which makes me think of summer. It’s all good stuff, man. How about you? 

[0:00:35] DB: Yeah. Summer’s winding up here in Michigan. I know it’s September. I know it’s hot, like everywhere else, but this is the end of summer up here. It’s definitely thinking about short-term rentals and not just from the fun vacation part, but today’s guest, like my mind is still spinning, because of the tax tips that they slipped in from a real estate investing in short-term rental properties I hadn’t thought of before, and it’s just my mind is still spinning. 

[0:00:59] NH: Yeah. To give everybody some background, we talked to Julia and Brad Myers, two pharmacists, married couple that shared some really interesting tips about when they stepped back and looked at where their dollars were going and ways, they could improve their finances. They realized, why am I paying so much in taxes? Is there a way for me to get in front of this? They shared some really awesome ways that they’ve done that. 

[0:01:21] DB: Yeah. We’ve talked so much on the podcast over time about real estate investing and a goal of generating cash flow as that investing strategy, but Julia and Brad talk about tax savings instead, as one of their aims for real estate investing. It still creates additional cash in their budget, because although they’re not generating massive cash flow, they’re paying a lot less in taxes, that still frees up their budget. 

I want to spoil the surprise. I’ll just tease it for a minute though. The tax savings tip comes about halfway through the episode, and you can probably, even if you’re not watching us on YouTube, you can probably hear our reaction of our like gasps, when we heard how much they’re savings in taxes. It’s just wild. Yeah. 

[0:02:07] NH: We realize taxes is not an easy subject. There’s a lot of nuance to it, right? In the spirit of season two, we’re definitely going to link you guys back a couple of times throughout the episode to some episodes in season one, that have some deep dives, some references to people that might be able to help give more background information, because we go through a lot and we go through it fast. If you get overwhelmed, I really encourage you to go backward and listen to some of those other episodes and dive a little deeper on the resources, because it can really help to support this episode. 

[0:02:36] DB: Yeah. Even if short-term real estate investing and tax isn’t your key strategy, if that’s not where you’re at, I still think there are some really strong takeaways in here as far as the value of education and strategy where they did a ton of research, put a ton of data together, developed a really clear strategy for their real estate investing. Then they were able to execute it with confidence. Again, if you’re in the long-term space. If you’re into storage units, whatever you’re into, there’s a lot of parallel takeaways from here based on how they operate their investing. 

[0:03:09] NH: Yeah. Great points. All right. Well, hopefully you guys enjoy the episode as much as we enjoyed recording it. We’ll take you to it. 

[EPISODE]

[0:03:17] NH: Hey, Julia, Brad. Welcome to the show. 

[0:03:20] JM: Hey, thanks so much for having us. 

[0:03:22] NH: Absolutely. 

[0:03:23] BM: We’re excited to join you today. Thank you. 

[0:03:25] NH: Yeah. Julia, we had you back on the main show back on episode 311. You talked all about, Raising Money-Savvy Kids. Fantastic episode. If you have not heard that one, listeners be sure to check that out, but we wanted to bring you back and invite Brad to come along with you. 

You guys, we’re really excited to have you here. Maybe jump in for those who didn’t hear the previous episode. Julia, give us a little bit of background on you and your pharmacy career and we can get the same information from Brad. 

[0:03:52] JM: Yeah. Thanks, again. It’s such an honor to be here. I love talking about pharmacy, and money, and family. This is a great place for us to merge all three of those. I graduated from the University of Wyoming with my pharmacy degree. I also have a business degree from University of Tennessee. I moved to Missouri and met Brad. We have five lovely kids together in our blended family. I’ll let him introduce himself and his pharmacy journey. 

[0:04:22] BM: Absolutely. Thank you once again for having us. I decided to join today. Brad Myers, I graduated and a proud graduated at the University of North Carolina. So, I’m a die-hard Tar Heel. I also received my MBA from American University. I practice primarily, in the health system space for just over 20 years. In Georgia, Virginia, and in Missouri. Then most recently, I left the health system space and joined a wholesaler distribution company for the last four months. 

[0:04:50] DB: Great. I know back on episode 311, a lot of focus on kids and family and money philosophy and one piece that we wanted to pull out of that equation and unpack a whole lot further today is real estate and real estate investing. I’d love to hear your story, if you could give us a quick overview of what your real estate history has been like, what you’re investing has been like, and what your goal and focus is in that realm. 

[0:05:18] JM: Awesome. For me, it started when we took a family vacation to the Outer Banks of North Carolina, a place that Brad’s family had frequented a lot growing up. We rented a house and I was trying to understand how does this work? People own it, but they can use it as a vacation rental and they can rent it out. 

Fast forward to when I was recovering from an eye surgery, I had nothing to do but listen to podcasts and got tuned into BiggerPockets and listened to this cool thing called real estate and was faced with the reality of potentially my pharmacy career being cut prematurely short due to visual disabilities, but that didn’t mean that my brain didn’t work. So, I went to Brad and said, “I think we could do real estate.” I think we could offset my income in some way, shape, or form and do that with real estate. We started off with one property as a short-term rental. That was two years ago. Then this year, we are in our second short-term rental. Two properties, both in North Carolina. 

Our strategy is to add one or so a year and then when we can’t self-finance anymore, we will exchange those into the next one. Main strategy for us is from a tax perspective, to high W2 earning pharmacists, means we have tax problems. First-world problems. For us, it was less about cash flow. It was less about quitting a day job. It was more about how do we have better wealth management from a tax perspective. Short-term for us is how we got into the game of real estate. 

[0:06:59] BM: I was going to add to that. To start this journey, I would say I was a little more on the scared nervous side of this. It was one of these where Julia comes in with a lot of excitement about listening to podcasts in real estate. I had the traditional mindset of stuff money away in your 401K, let’s set up a Roth. Let’s make sure our savings are large. Then as we started to listen to more podcasts, and I’m very much driven by data — and there was a podcast I still remember very well where they looked at the stock market over time versus real estate over time. That was my turning point. We said, “Oh, we really do need to look at how do we diversify our portfolio, instead of just stuffing money into 401Ks. Then the mattresses and the savings accounts. 

[0:07:42] NH: Yeah. I feel like so many pharmacists resonate with two things that you, each of you just said, right? The tax problem, right? A lot of us make great income, but struggle when it comes to tax time. We look back at the end of the year and go, “How much did I pay to the federal government? How much did I pay to state taxes?” Yes, definitely resonate with that. The scary part that you mentioned, Brad. 

If you’re anybody out there listening and you’re thinking about starting in real estate, most of the things that we hear from people in that space are, I don’t know how to get started. I’m nervous about risk. I know how my 401K works. I put money in it and I think it goes up, right, over time, but I don’t know how to get into real estate. I don’t know how to learn all this stuff. How did you guys take that leap from, “Hey, this is interesting. We’re staying at a vacation house. I’m listening to a podcast.” To, “Yeah, I’m ready to buy and I have all the tools, I need to do that.” 

[0:08:36] BM: I’ll start with a just high-level conversation. I’ll have Julia jump into the weeds of this, but for us, was really sitting down from it. We treated like you want a business plan and I’m developing in the health system space is, you look at your strategy and really cast your net wide in terms of what are the options that are available in real estate. We started to put those into what I call buckets, in terms of long-term, short-term, just learning the medium-term rental market as well, and then what would fit us from a strategic standpoint. As Julia mentioned, our decision was not necessarily cash flow, but how to reduce our tax burden. 

[0:09:12] DB: Yeah. I’d love it if you could unpack that a little bit of how so many people get into real estate thinking, this is how I can get extra money and this extra money can help, because taxes come out so much. They look at that cash flow is the way to offset, well, I have to pay a lot in taxes, but you’re talking about more tax deductions and tax savings, right? I’d love for you to unpack that a little bit of why that’s unique to the short-term rental market right now, as compared to other investing strategies in real estate. 

[0:09:43] JM: For us, we were both fully employed, which meant that some of the benefits of real estate, such as depreciation. The value that something goes down on paper, not necessarily actual value goes down. Appreciation is not the opposite of depreciation. They’re two very different things. So, for us, the short-term rental space in the tax code there is a piece of information, and I’m not a tax expert. Please consult a tax expert. However, when you rent a property for seven days or less, it is not subject to some of the same rules that a traditional piece of real estate is subject to. For us, that unlocked the bonus depreciation that happened in 2022.

Then there were partial bonus depreciation that’s now in 2023. Therefore, what we are able to accomplish is not just deductions from your expenses, from your software management, from your linens, or from your advertising, but you’re also able to offset active income with active losses. For us, seven days or less unlocked the active losses from depreciation, and we were able to put pen to paper and carry it forward when we filed our 2022 tax return. 

[0:11:09] BM: From my perspective, it’s cash flow, but it’s different than what we think of as cash flow, right? Because if you’re paying just less tax burden, that is cash flow. It may not be in the form of rent, but then the day it is the same principle, just a different way of looking at it. 

[0:11:27] NH: I want to highlight — something you just said, Julia, because I think sometimes it’s easy to gloss over. People hear the idea of depreciation and it introduces your taxable income, talking about active versus passive income. Essentially, what you’re saying, again, this is common and out there. We actually interviewed Thomas Castelli back on episode 96 all about the tax side of things. If you’re looking for a great podcast or a great resource on that, definitely take out Thomas podcast. We’ll put that in the show notes. 

What you’re talking about, essentially is taking losses from the real estate side and applying it to your income as pharmacists to reduce the amount of money that you have to pay to the federal government, right? You’re taking things from the real estate side and offsetting money that you’re making as a pharmacist, which is crazy, right? It just sounds like, what? I can do that. Once you figure that out and start to unlock that, it really gets pretty incredible. 

[0:12:20] JM: That was the catalyst for us. You said, how did we take the leap from an idea in a podcast. I actually invested in a tax course. I know that my husband loves data, so I need to be ready with some actual numbers, and some actual people, and some experts. So, we had tax Tuesday at our house for about six weeks where we walked through different scenarios and situations. I felt more confident in my knowledge of the details in then saying, “Okay, we’re going to do this in that next calendar year.” Which was 2022. 

That’s what led us to start thinking about narrowing our strategy, which one unlocks the tax savings for us. It was a short-term rental for us when we were leaning towards markets. We said we want a vacation market. We’re based in Missouri. There are some vacation opportunities here, but we would rather vacation on the East Coast. The outer banks of North Carolina were an easy one for us. We didn’t really research other vacation markets. The smokies were really hot then, but I’m a water baby. I love the water and the ocean. I love being close to family. So, for us, searching the outer banks was the next best thing. That’s how we landed on our market. That’s how we landed on short-term rental for our first property. 

[0:13:44] DB: I like that a lot. I love the idea of the tax Tuesday, because, okay, like that sounds like, I admittedly say, that sounds like a little nerdy, right, like to dig into taxes every night for six weeks or for Tuesday nights for six weeks, but like how many people out there are just clicking next episode on another show out there. So, you just sacrificed like six evenings. You created a bunch of knowledge and that drove a huge shift in your financial picture. 

I think of that investment in time as super valuable to figure out a strategy that works for you in your personal finance situation. Knowing that that’s unique for everybody, you dove in and you worked through that. I’m assuming too, somewhere in there that once you did the work, you checked with the tax professional to make sure that everything you were thinking and learning is on the right track and all that before you filed your tax and potentially went up in trouble. 

I think it’s always a good idea to check with a with a tax professional like that, but that helps with the – I had a similar experience reading a book cover to cover and my wife thinking like, “What kind of nerd are you to read the tax book cover to cover?” But it helps so much with that brainstorming to figure out these strategies. 

[0:14:55] BM: Yeah, it was. It was torture at first and blissful at the end, is how a tax Tuesday. It goes back to where we were talking about earlier is creating that strategy and it would help us narrow down to, “Hey, this is a route we’re going to go, because we’re looking at tax burden, how to reduce the tax burden.” Which once again is technically cash flow, right? Just a different way of looking at it. With most pharmacists as well, we tend to be very risk-averse, bigger risk, risk-taking, but we tend to be more or less analytical. I think for me, it helped overcome that fear when I was able to see the numbers and the data to help drive our decision to be forward with our first property and the other things. 

[0:15:33] DB: I want to pick on that risk-averse thing that you said right there because I know a lot of people view risk in different ways. So, some people will think, well, the less risky thing is to buy a really inexpensive property. That’s not necessarily what you all did for your first property. I’d love to hear what helped you to make that jump, especially for a vacation market, a really nice vacation market like the Outer Banks. I’m guessing that wasn’t like a $100,000 single-family house or anything like that. 

[0:16:03] JM: Great question, Dave. We actually bought a vacation house nicer than our house back in Missouri. We did that because the data says that’s just the cost to buy in the area. I did some research on the total costs of ownership. The house we got is actually not the first one we were under contract with. The very first one we were under contract with was less expensive in probably the $600,000 range. We felt very comfortable leveraging our primary home and a HELOC for a 10% down payment for a vacation loan. We felt super comfortable with that. 

Then we got under contract. We made an offer. We were so excited. Then the inspection came back. The guy was super honest with us and said, “I’ve never seen lipstick on a pig like I’ve seen it with this house.” They’ve never maintained the bones of the house. They’ve only just painted the outside. So it looks beautiful. You’ve got great views, but you’re in a flood zone that you can’t even get FEMA flood insurance. You’re going to have to carry flood insurance $25,000 to $30,000 a year just in the flood insurance policy. 

Our very, very first time making an offer — North Carolina’s got a rule where you put down not only earnest money but due diligence money. I had to look at Brad and say, “I don’t think this is the right house.” I’m willing to walk away from all this earnest money, be humble, and also say, this is the best lesson we’ve ever learned, is just because you get excited about a pretty house that’s going to be a vacation house. It’s exciting about real estate. It’s got to make number sense. The private mortgage insurance, the amount of money we would have had to put in to structurally fix this property was just out of scope for us. 

We wanted a short-term vacation rental fairly turnkey. We can change the decorations. That’s how we landed on the house that we have. It was a little bit grandma-decorated. So, we updated a few of the bedrooms and the kitchen and living area. Changed out some light fixtures, but for us, we really wanted to walk into something fairly turnkey. We were in the spring making these offers and it’s summer rental time. We need to not miss out on the first peak season of summer rent. That was an interesting thing for us. 

We started in the 600,000 range and we realized we’re going to have to go up to get something that is rentable in a desirable area. Most people want to be able to see the beach or be on the beach. Even though the Outer Banks is an island, not all places have an ocean view. We also identified that the Outer Banks is a long set of islands. The further you are from town, the less expensive properties are, but they’re less desirable from a rental market and often harder to get to. So, we didn’t even see these properties. We did it all completely remotely and worked with a realtor who FaceTimed and a wonderful mother and father-in-law who drove down to these properties for us. That was what it really just solidified. I think we’re going to have to go up in our budget. 

[0:19:14] BM: To add to that as well, going back to our discussions earlier about Tax Tuesdays and from torture to bliss in six weeks. It comes down to a mathematical equation, almost, in terms of what is the cost of the home that you need when you think about bonus depreciation to knock down your W2 income. In addition to the data that helped drive it in terms of your rent per week or per day, that’s part of that equation as well when you’re looking at the cost of the home that you want to jump into for your first home. 

[0:19:48] NH: That’s something that every time I’ve looked at short-term rentals, I always struggle with is some of the data, getting access to some of that data, especially like the rent per day and what that looks like in June versus January, right? Was that intimidating? Did you have a good resource for that? I know people use things like AirBnA, and some of those other things that are out there, but was that a problem or something that you found a lot of data and was able to solve quickly? 

[0:20:13] JM: Great question. The Outer Banks market is still really driven by privately owned property managers. Many of the properties are listed and you’ve got to comb through them one by one. AirBnA and AirBnB were actually a little off in our market, maybe 10 to 15% over-inflated, because it didn’t represent the full picture of the market. That was something that I learned and knew most of the houses that you’re purchasing come furnished and come with rental projections from the property manager that had it before you. 

Our two data points were what’s the mortgage payment going to be for 12 months. Then the peak season is 12 weeks of summer rent. Can each week plus expenses and utilities cover the mortgage payment? That was step one and box one that we had to check and as if it’s cash flowing better than what the mortgage would be and in a beach market — that’s pretty common to be able to cash flow in that way. 

Then the second part was, how much depreciation do we need and there are great calculators out there and great cost segregation companies that will give you an estimate based on the purchase price and the land value. For us we found that being on the beach or right on the water meant you would rent better, but the amount you could depreciate was less because the value of the land on the ocean is much higher. We went one block back where the land went way down, but the home price was similar to being on the water. We exchanged potential rent revenue for depreciation and potential appreciation. 

[0:21:54] NH: See, that’s huge. That’s something I’m fairly certain, I’ve never heard somebody say on a podcast. I haven’t listened to everything, but I’ve never heard someone say that before, right? That’s really cool. I want to make sure we highlight that for the audience in case you missed it, but that is that, you guys really looked at this and said, look we have a lot of income that we’re trying to offset. Making money off this rental is important, cash flow is great, but there’s two forms of cash flow. Brad, you keep saying it, right? It’s the money you actually get from the rental and it’s also the money that you’re offsetting from your taxes and the tax burden that you have. 

You guys looked at that in such a cool way to say, if we step away and get better depreciation from the building which is what actually is creating that depreciation, rather than the land then we can actually achieve higher cash flow. When we look at our entire book. I think that’s really, really cool. Again, I’ve never heard anybody say that before, so I want to make sure we highlight that for the audience. 

[0:22:42] DB: You also brought a cost segregation. I know we’ve talked about that on a prior podcast so we’ll link to that in the show notes as well, but the general concept of cost segregation study, I know that’s paying maybe a few thousand dollars for someone to go through and do that, but can you break down the cost segregation study and what that did for that depreciation picture particularly in that first few years. 

[0:23:03] JM: Yup, absolutely. I’ll use some real numbers to give folks a good example. The purchase price of the house is what starts the cost segregation analysis, so we purchased for $820,000. You’ll subtract out the value of the land. The cost segregation company says, “Check with your tax person to see the value of the land.” The tax person said, “Check with your county assessor because we don’t know how much your land is worth, or what does your closing cost or closing statements say.” 

We landed with whatever was recorded with the county which was maybe $30,000 of land value. These are not very big pieces of land. They’re just built up really tall. What that left was the structure and the structure was then divided into usable pieces of that structure. How long does something last, sometimes you have one to five-year property, sometimes you have 15-year property, and sometimes you have 39 and a half, because it’s considered an investment or a commercial use space. 

Different cost-side companies approach it differently, but instead of us taking one-39th of the value of the property and appreciating that over 39 years, we were able to say the cost segregation identified each of the value of all of the pieces. Then we were able to add it up to then calculate an estimated amount of depreciation. 

[0:24:32] DB: Yeah. So, then you’re thinking like, for an example the five-year property might be like the beds, and mattresses, and TVs, and furniture, and some of those items and the 39 and a half might be like the roof and the windows and things you don’t need to replace quite as often. So, they go through and they do all that math and what – if you don’t mind sharing, what was that figure that was depreciated then it totaled in the first year?

[0:24:54] JM: In the first year, because we were able to bonus depreciate, it was over 600,000. 

[0:25:01] DB: Wow. That was able to offset any active income so that essentially, brought your – unless you’re making a lot more money than the average pharmacist that brought your federal taxes down to zero then for year one, because you bought this investment property. 

[0:25:21] JM: Yes. I’ll add. We closed in March. I self-managed and got 12 weeks of rentals on the books. We paid for the cost segregation study in the fall. I think in September, we got it back two weeks later, and met with the CPA. Then in October, we changed our withholdings to zero, because Brad’s a data guy, right, he’s like, “I’m not going to see this until the tax person says that this is really how it’s going to work and if you don’t use all your depreciation there’s carryover.” So, we were able to not only have zero federal tax due based on our tax return, because of active income, offsetting active, W2 earnings we then have some carryover. 

It also means that we need another property each year because we’ve squeezed out all that depreciation and this year we really didn’t want to change our tax withholdings back up after paying zero because you can’t add that back into your budget. You’ve got to use that tax savings to then fund the down payment for the next place. That’s exactly what we did. That might be a caution for any listeners that are like, “I love this tax savings because it does have to be paid back.” There are super technical details around it, but once you start getting down this whole of real estate, you kind have got to stay with it. So, that would be an important piece of information. 

[0:26:49] NH: It really is important. I’m glad you highlighted that Julia, because I’m sure at least half of our audience just ran over to check with their tax return was last year to see what they paid federally. Then like, “Hold on. I got to go buy a house.” But it is something that you want to take the time to research, right? It’s not something you can just do and it always works out perfectly, right? 

Your story is fantastic, but you have to know that there’s depreciation recapture at some point. You have to know that in order to qualify for the short-term rental loophole you have to be running out for a short amount of time, like there are a lot of laws within that realm that you guys spend a lot of time in diligence or understanding and learning. Yes, outcomes fantastic, but for a second, be a cautionary pharmacist and look at the actual details first. 

[0:27:31] JM: That’s what led us to our second property, which we in the off season listed the first property in the Outer Banks. It wasn’t really renting on Airbnb. I didn’t expect it too. Without a property manager, most places just button up and close up for what they call the winter or the off season. We got to enjoy it personally a few times for some maintenance and repairs. Very important language that’s you include there when you go visit your properties. Maintenance and repairs. 

Then we got an inquiry from a insurance company. There was a family that had a flood in their home in the Outer Banks and they needed to move in in two days. They were going to be there for three months. We said, “I think we’re going to make the jump, because if we open it up to this family in February, we’re not going to be able to rent it out in the summer, necessarily. I don’t want to kick this family out for people that are vacationing.” I’m excited to share that that family’s still there and they just extended to another three months, so we’re going on nine months of an insurance contract which stepped me out of the short-term rental seven-day loophole space.

 I also stepped back for my full-time role. Now, I’m pursuing other ways to unlock that depreciation or active income by being a real estate professional. I can do that when more hours come from real estate than anything else. That is what led us to our second property. We moved a little bit inward in the state of North Carolina. It was important for us to say in the same state, just because it’s one less thing to have to worry about from a tax perspective from a reporting perspective short-term rental income, especially when you’re self-managing. You’ve got to remit local occupancy tax, as well as state occupancy tax. 

I got comfortable doing the North Carolina portals and I wanted to do that in the same state if possible. We selected the Raleigh market. We got really interested in this medium-term space targeting executives or professionals or people that are displaced from natural disasters or tragic events. I think Rachel Gainsbrugh has been on your show. She and I chatted a lot about this medium-term rental space. We now have our Raleigh property, purchased way less than 820,000. Still more than I would have liked to pay at 460,000. we’ve not done the cost segregation yet, but we got it listed. We purchased it as a flip. Somebody else had already flipped it. Somebody else squeezed the money out of an older property in an older home. 

What I did is I partnered with a professional design and decorator company. They took care of the shipping and the logistics. All we had to do is be on site. What they said was for a week to set it up, but if you’ve ever set up an Airbnb, do not give yourself a week. Give yourself several weeks or weekends, because it just takes way longer than it should. However, once we got it all staged, put together, we got pictures taken, I got it listed and within maybe two weeks of being on Airbnb, I was able to get a 60-day booking in this medium-term space.

[0:30:43] NH: That’s great. Wow.

[0:30:44] DB: Now with the with the medium-term rental like that, I know that we talk often about the 1% rule in the long-term rental space where you you’re hoping to get 1% of the purchase price of the property per month in order to feel like this property may at least break even if not cash flow a little bit. I’m curious what does that monthly rent look like with the furnished property, especially knowing that you’re paying a little bit more in expenses presumably, like utilities and things like that, that you might otherwise pay in a long-term rental, but how does that stack up and how do those numbers start to look? 

[0:31:16] JM: Great question. One year later, interest rates have changed. That also, plays into the bigger picture for me in general. I was looking at realtor.com and Zillow for what unfurnished 12-month long-term rent would be. I doubled it. So, if typical rents were 2,500 to 3,000 for a three-bedroom three-bath home, I doubled it and listed it at six. I ended up, because when you’re a new listing on Airbnb you offer promotions, so a 20% discount. I don’t know if I’ll really get 6,000 a month furnished from a travel nurse or from a professional. However, from the insurance companies that’s a very real number. So, for me that covers all of our expenses at 6,000. 

[0:32:09] BM: To add to that, as well. Just going back to our discussion about strategy, that was important for us as well to find the location in the great neighborhood first, but also the great neighborhood has to be located somewhere that’s going to be – that it’s going to be wanted by your executives or your travel nurses or so we chose a location that’s a mile and a half from a large hospital, within Raleigh it’s a mile and a half from the capital. Then about two miles from the university on North Carolina State University.

It gives us the population of potential university professors who are visiting, or physicians that are coming in for three months stints. So, that was important for us as well from a strategic standpoint to find a home that, one we loved. We loved the area. Then also it would make sense for me, because it is a business at the end of the day, because in terms of the home which is hard to detach sometimes between the love for your home and treating that as a business. 

[0:32:59] NH: It’s really great point too and something that others have mentioned too, about short-term rentals is that that location can be absolutely key in terms of one, who’s going to be coming to visit and why would they need a place there? But also, things like zoning, too, right? If you look at Raleigh and it looks great from a tourist standpoint, but they don’t allow short-term rentals or they’re cracking down on them like that’s not a good fit. Location and doing the research on that can be absolutely essential, as well. 

[0:33:24] JM: That’s why I had it listed for 30 days stay or longer as our short-term rental permit hadn’t cleared yet with the county. So, following the rules. I listed it. I was able to get it rented. I thought that was really interesting. 

[0:33:38] DB: Yeah. One just running thread in your story is like the amount of due diligence and learning that you’ve done. You didn’t just like, “Oh, let’s go by a vacation rental. This one, looks really pretty.” Like you didn’t do anything like that, right? Like there was so much calculus behind what you did to make sure that this came out really well. I’m just thinking through one angle, back to the prior episode on the podcast. Thinking about what’s going to the next generation and that family mentality. How are you wrapping this into your family plan and generational wealth and some of those things the story that you’re building? How is that coming together and what’s your plan there? 

[0:34:20] JM: I’ll go first. Then Brad I’ll let you take it home. We talk a lot with the kids about there are different ways to earn money. There are different ways to save money. We will share that we buy assets. We drive really old beat-up cars that are completely paid for and they’ll ask, why aren’t we getting a new car? We’ll say, “We’re saving up for another house.” With that comes we’re able to help this family that was in a tragedy. Now, they don’t have to stay in a hotel and share the practicality of it or do you remember when we moved and we didn’t have a place to be and it was this weird situation and our stuff was here, but we were there. Imagine you could just walk right into a place that felt like home? 

Having those conversations with them is where we start. Then with my older teens, I’m talking with them about ways they can get involved or potentially house hack. I’ve got one in college now that —  I can’t beat what she’s paying in her apartment, but potentially that option and thinking from that mindset of, “Okay, how do I work smarter and not just harder?” I think that’s important, but then also, we talk about the diligence that’s needed. 

They’ll see me, I’m like, “Hey, guys we don’t have phones at the table, but I’m going to message this guest right now because they asked me a question.” I’ll openly share, like I got this question on Airbnb, or here’s how I’m responding or what do you guys think? They want to cancel and it’s the day before. What should I do? What would you do? Knowing that those are maybe conversations they’ll never be exposed to at any other point in their life and why not have those? So, those are some of the things that stand out to me, especially with the older ones versus just we buy houses, it’s what the little ones might say.

[0:36:09] BM: And just to add. We definitely, have a group of conversations with kids. I don’t know if they enjoy or despise our dinner table conversations, but by force they have to participate in the conversations. We’re not talking about it every single night at dinner, but it is something we do bring up as part of our discussions in terms of just talking about money, spending money, and the places that you value. We’re not going to eat out five times a week, but we’re going to take really nice vacations or so it’s the same line of discussion with our kids. 

They’re starting to see the value, as well, as we talk about it. When see the lights come on, especially in the older kids in terms of like, “Oh this makes a lot of sense.” Teaching them what I had to learn through a podcast with Julia saying “Hey, we need to go in real estate in terms of when you look at your portfolio. It’s not just stocks, savings account, and stuff in your mattress, right? There are other ways to diversify so that you can grow your wealth over time.

[0:37:05] NH: Yeah. I really like that. I think that’s so important to be able to not just learn it for yourself, but also teach that same stuff to your kids and then they can carry it forward. I think the parts about not just – here’s how we make a bunch of money and then we can go spend on whatever we want. It’s here’s how we can use our wealth and our opportunity to better our own lives, hang out more, whatever that looks like, have better vacations, but also better the lives of other people too that might need it, right? I think that’s – that’s the part for me that really resonates when we talk to our kids about real estate investing like it’s the same vein. It’s a great perspective to bring that forward, so thank you.

[0:37:41] JM: I’ll add two more quick things. The insurance companies pay by check not direct deposit, so when I get a check, I’ll show the big kids and they’re like, “That’s a big check.” I’m like, “No. It’s physically like it’s a big whole-page piece of paper.” They’ve never seen like corporate checks before, so it was a teaching moment there to be like, “Here’s how you sign it. Here’s where we deposit it.” They’re like, “Well why aren’t you putting it in your bank account?” I’m like, “Well we have a separate bank account for the business and that’s how we do it.” Just some of those teaching moments there are really important.

Getting them to start to dream a little bit, about how we’ve picked places that we as a worst-case scenario we’d like to strategize, right? If it’s not short-term, it’ll be medium-term, it’ll be long-term or we’re living there, “Worst case scenario, where do you guys want to go? Where do you guys want to see us maybe think about investing?” We joke that we have a beach house and a city house and they’re like, “We need a mountain house.” So to hear them dream and have that vision is maybe something very different than anything that I experienced growing up and that mindset I think is huge for them to see that we can do this because we don’t have any debt other than our mortgages, because we are clear with our financial plan and our financial goals. That just is part of doing that due diligence and putting it all together.

[0:39:09] NH: I really like that. Thank you for sharing. Guys, this has been excellent. I want to wrap things up then with our final infusion questions. These are three questions we ask all of our guests on the show. So, we’ll flip these to you guys. Julia, we’ll get your take first and Brad’s take as well and see if we can get some answers from you guys. The first one and you’ve hit a couple of these already, but just to wrap it up in a nice bow. What’s one tangible strategy that you use to make sure that you’re investing works hand in hand with your career as a pharmacist?

[0:39:38] JM: Seven-day short-term rentals.

[0:39:41] NH: I like it. Short and sweet. Perfect. 

[0:39:44] BM: Mine is definitely strategy and data to drive the decisions.

[0:39:50] NH: I like it. 

[0:39:51] DB: I love it. Second question. What’s one resource that’s been most helpful to you in your real estate journey, whether that’s a book, podcast, person, author, website, tax course, whatever that would be? 

[0:40:03] JM: I think it’s going to be the BiggerPockets, sponsored tax course with Amanda Han. We can link that in the show notes. That was a game changer for us. It was the first time we spent money on a course, ever. Even just having that conversation, if we’re going to spend a lot of money on a house, we should at least spend a little bit of money on some education and step our toe into that in a safe way. So, Amanda Han is a great resource. She’s on social media. She’s got lots of practical tax tips, especially for high-income earners.

[0:40:36] BM: For me first and second and third was Julia. She’s a great resource for me. I guess, number four then, tax Tuesdays, you just referenced that Julia, so that’s from torture to bliss in six weeks. Then for me also, the presentation I referenced earlier was a presentation by Eric Tate that they’re looking at diversifying their portfolio. He has quite few podcasts that. It’s a different angle in investing that we’re in, but it’s still the concepts are the same.

[0:41:05] NH: Great plug. Again, Amanda Han, fantastic resource, agreed. We had her back on episode 18 along with Matt and just a fantastic resource, so great shout out there. All right. Then number three. What’s one piece of advice that you’d give to a pharmacist that’s contemplating a start in real estate investing?

[0:41:22] JM: See how much you pay in federal taxes and decide if you’d rather pay the government or you’d rather pay yourself with a mortgage or an expense, because you have to pay the mortgage like it doesn’t always pay itself. You have to have the resources and the reserves, however if you’re willing to make that exchange it worked really well for us. 

[0:41:47] BM: I’m sticking to my story. Have a strategy and drive your decisions with data. Take the heart out of it, because it is a business at the end of the day.

[0:41:55] JM:  I’ve got one more is real estate is a really big umbrella, just like pharmacy is a really big umbrella. You can talk to 10 different people and hear 10 different ways that they get involved in real estate, just like you can do 10 different things in pharmacy. Starting off with just the basics, understanding the spectrum of little bit of involvement to a lot of involvement, little bit of money to a lot of money. There are just some really simple ways to get started with what’s your why for getting started in real estate. Then pivot from there to see how you want to accomplish it with the actual strategy in place.

[0:42:30] DB: I love it. That’s fantastic. If people want to reach out and talk more, learn more about you. Where can people find you?

[0:42:35] JM: Well, I’ll give a plug for our two rental houses that I self-manage. So obxlanding.com. Now taking summer reservations and raleighlanding.com. You can also find me on social media @juliamyersrx on all the socials.

[0:42:50] NH: Perfect. Well, guys thank you so much for joining us. Just really appreciate your insight, your perspective, your philosophy on how to approach this. I think it’s really going to resonate with a lot of our audience, so just appreciate you guys sharing it and spending your time with us.

[0:43:02] JM: Thank you, guys. 

[0:43:04] BM: It was a pleasure. Thank you.

[0:43:05] DB: Thanks so much.

[END OF EPISODE]

[0:43:07] DB: Thanks for listening to the YFP Real Estate Investing Podcast. If you like what you heard on today’s show, please leave us a review and subscribe to the show, so you never miss an episode. If you have a question, know someone that would make a good guest, or want to connect with us, head on over to yfprealestate.com and join the growing YFP Real Estate Investing Facebook group.

[0:43:25] NH: As we conclude this week’s episode of the YFP Real Estate Investing Podcast, an important reminder that the content in this podcast is provided to you for your informational purposes only and is not intended to provide and should not be relied on for investment, or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation, or offer to buy or sell any investment, or related financial products. We urge listeners to consult with a financial advisor with respect to any investment.

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

[0:44:19] DB: Thank you for your support to the YFP Real Estate Investing Podcast. Have a great rest your week.

[END]

 

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