In this episode, we're joined by Leti & Kenji of Semi-Retired MD, where they help liberate physicians from the clinical grind one real estate property at a time. On today's show, we discuss how they achieved financial freedom through buy and hold real estate, the tax strategies they use to minimize taxes and help grow their portfolio, mindset, the struggles physicians face in the world today, and how their platform helps others achieve financial freedom.
Leti and Kenji were reflecting on how they wanted to live their lives. After they determined what that ideal life looked like, they needed to find the vehicle to take them there. Since deciding to pursue real estate as their means to financial freedom and independence five years ago, Leti and Kenji have acquired over 60 units. Kenji began reducing his time spent in the clinic to qualify as a real estate professional for all five years.
Real Estate Professional Status
Kenji had an idea, before entering real estate, that there were certain professional statuses available. He dug a bit deeper on his own then sat down with a CPA. At this point, Kenji had fully embraced the fact that real estate was his profession. Now, to qualify for the real estate professional status.
Kenji had been involved in several other small businesses - he had already begun reducing his hours as a physician. He brought the discipline of tracking his hours, income, and expenses. He was in the mindset of treating the real estate as his profession, thinking about how to improve the operations every day. With this focus, the jump to claiming the RE Pro status was very realistic and natural, and Kenji does not believe that meeting the real estate professional designation requirements are difficult with this mindset.
Since the real estate professional status enables investors to take passive rental activity and reclassify it as non-passive, any losses generated can be taken against ordinary income. Leti and Kenji wanted to shelter their clinical income with real estate. They didn't have much exposure to advanced loss-generating strategies such as cost segregation, so they began with buying distressed properties and doing major rehab and repair projects. This certainly works. After a couple years, they became more familiar with cost segregation studies and began to conduct these studies on every single property.
Many investors are concerned with the much larger gain on sale after conducting a cost segregation study. The long-term strategy for Leti and Kenji was to buy large multifamily property and hold indefinitely. Beginning with single family homes and duplexes, Leti and Kenji began using 1031 exchanges to trade up to the larger properties.
Originally, their goal was to replace their clinical income, which was about $600K total. A couple years ago, after bringing in $250K of tax-free income, Leti realized that she was totally content with this amount and that doubling that income wasn't necessary for freedom and happiness. This took about three years. At this point, Leti continued working in medicine only because she wanted to. Kenji had a similar reaction, that the number required for financial freedom isn't as high as many people may think. Once that level or freedom was achieved, they were wondering about the next step. They realized the next step was to improve themselves and help others gain financial freedom.
Begin with the End in Mind
Leti and Kenji actually never owned their primary residence. They decided that every dollar was best used to grow their wealth. They house-hacked and cut out tons of expenses, living below their means. You need to have a vision with the end in mind and you must assemble the right team of people. CPAs, real estate agents, and contractors are all integral to any plan like this. Kenji also mentioned that your "Why" is necessary to have a constant source of motivation. Once you determine your "Why", you can determine what action is necessary to achieve that goal.
Semi-Retired MD started by helping friends and colleagues enter the real estate world. After others began seeing success, Leti and Kenji started a blog to spread the knowledge even further.
Right now, being a physician is tough. Physicians are either working on the front lines or taking pay cuts or being furloughed. Even before current times, there was a large segment of physicians that were burnt out and had no control over their working environment. Many physicians aren't able to work on their own terms. Other sources of income enable physicians to take more control over their lives, living and working on their own terms.
Their goal is to take someone who has little or no knowledge about real estate and build their knowledge and confidence to the point where they can make moves on their own. There can be many curveballs in real estate and this can be very frustrating. As a real estate investor, you will definitely encounter these challenges. Kenji believes that fears and limiting beliefs are the most common sources of failure. Leti and Kenji strive to help people work through the fears and concerns and be prepared to enter the real estate world.
Learn more about Leti, Kenji, and their work: https://semiretiredmd.com/