A Local Travel Month

The golf trip to Boston was just my second time playing golf in my lifetime and the first for Mrs. Max OOP. So as expected, our overall performance was pretty miserable. But we were able to show some improvement as the day went on. We played in groups of four and used the “best ball” from each member of the team after every hit. It is a really good way for beginners to learn the game since someone who actually knows how to play golf can carry the team forward while those with less experience still get a chance to practice their swing at each stop. We probably came in last in the tournament, but still had a great time. I don’t imagine we will pick up golfing too regularly though. I am thinking a frequency of once every 10 years will be good for me.   

The very next weekend I blew out of work early on a Friday to head up to New Brunswick, Canada for a nice long four day weekend. We spent a lot of time just hanging around my mother-in-law’s homestead and pretending I was on sabbatical. We did manage to get a few day trips in though. We made it out to a farmers market one day where we scored some fresh salmon sandwiches for only $5 CAD. The next day we took a two hour road trip to Hopewell Rocks and the Bay of Fundy. I also got my fair share of Moosehead Lager.

For the fourth weekend in June, we took a day trip to Sugar Hill, New Hampshire to check out the Lupines in bloom. I guess Max OOP is to a point in his life where he takes photos of flowers. This place actually smells like sugar. They have a Lupine festival in Sugar Hill every year, but this year the Lupines were late and didn’t even blossom until a few weeks after the festival. Translation, Max OOP didn’t have to deal with a bunch of tourists with selfie sticks. Move along tourists, no lupines to see here. Max Out of Pocket readers are always welcome, though, and it is worth the trip if you are ever in the area. We stopped for a nice lunch at the Hungry Bear Café. Max Out of Pocket for lunch was about $23 for two delicious sandwiches. I normally try to avoid eating out in the pursuit of early retirement, but sometimes you have to make exceptions. Also, Mrs. Max OOP enjoys eating out more than I do and we don’t want to let my frugal tendencies take away from her fun.

I closed out the month spending a whole day in Portland, Maine by myself. I was able to get some “day job” work done, get a haircut, and pick up some family from the airport. The Old Port is awesome.

Healthcare

Mr. and Mrs. Max OOP spent zero dollars on healthcare expenses in June. My freak abdomen pain from last month didn’t come back, and Mrs. Max OOP’s back pain from April stayed away. So we are both feeling pretty good about our health. I am still doing really well with my weight lifting routine and maxed out at 215lbs early in June. I tried 225lbs on June 24th but wasn’t able to get it up. Having the blog will be nice since it will be easy to look back on our personal healthcare journal as things come up. 

Although my $39/month gym is closing at the end of August, I did fork another $39 over to them to cover the June membership fee. I will probably only have to pay them two more times in 2019. Hopefully I can get something lined up before they close down.

Finance

Max OOP continued full speed ahead with the healthcare REIT experiment. I made two more purchases of medical office buildings in June. The first one was made during my lunch break where we mentioned that Max OOP has been loosely applying dollar-cost averaging principals to the healthcare REIT investment. That’s because I have been regularly investing in Physicians Realty Trust (DOC) every two weeks on payday. The second purchase was made after we took a look at who is living in my medical office buildings. We found out that not all of our tenants are Triple AAA+ platinum renters like Max OOP, but we do have some pretty solid tenants.  

The Max Out of Pocket healthcare REIT portfolio is quickly approaching $25,000 and should spit out $1,250 in passive ‘rental’ dividends over the next year. I will probably be tightening up this investment over the next few months as we decide where we want to go from here. We still have a lot to learn about REITS, but as this investment becomes a larger bucket in the overall Max Out of Pocket investment portfolio, we will need to put some structure around it so Max OOP doesn’t mistakenly think he can time the market or pick stocks. Total stock market index investing still seems like the path to the promised land, but tunnel vision is dangerous and that’s why we are always looking to learn and consider other options.

It looks like our overall net worth went up about 2.8%. Max OOP has been getting pretty loose with spending lately, so I will be tightening things up around here again soon. My personal laptop shut down a few months ago so I completely stopped reviewing our monthly spending. So once I drop a few hundred on a new computer, we will review how the last few months look.  

Blog

I am still enjoying the blog and hoping to start producing more practical healthcare content soon. I have been trying to get used to writing again since I probably haven’t written anything but boring corporate emails since about 2006. It is important to get the healthcare content accurate and useful while keeping it somewhat entertaining around here. Not an easy task, but it turns out I actually enjoy writing and like my new hobby.

We started the month doing a full analysis of an NPR article that suggested a patient in Wisconsin was charged almost $5,000 for Nitrous Oxide. I was very proud of my title “Midwife Crisis and $5,000 Nitrous” and fully expected my article to go viral. This just goes to show how ‘green’ I am to the blogging world. Unfortunately, the NPR article fell a little short in using the situation to fully educate healthcare consumers on how healthcare pricing works. Evidently, NPR has been doing this “Bill Of The Month” series for just over a year. I read some of the articles from the past few months and several of them do a really good job identifying breakdowns in the healthcare system. Although the Nitrous Oxide article brought up a lot of good points, it just didn’t get the full Max OOP seal of approval. Since I really want to come from a place of collaboration, I did reach out to the author to share my expertise in the field with an offer to collaborate, but I haven’t heard back. I even shared it with a few local reporters in Wisconsin. I noticed a few people in Minnesota and Wisconsin took a peak at my post, so maybe we did get to educate someone after all. We need to tackle this problem together as Max OOP doesn’t have all of the answers; just most of them. 

Unfortunately, NPR released another “Bill Of The Month” article on June 17th that didn’t get my full seal of approval either. It was about a $94,000 bill a patient got for neuromonitoring during back surgery back in late 2017. The article made a lot of good points about consents and out-of-network providers working within a hospital that is in-network. This is extremely confusing for patients since they think they are doing everything right, but have no reasonable way to know that someone working within the hospital walls is not in their network. But once again, there are a few holes in the analysis. 

The title of the article said this bill was a “real back-breaker”. Cute. Actually sounds like something Max OOP would come up with. The only problem I have with this article is there wasn’t even a bill yet. In this case, the article is cherry-picking an Explanation Of Benefits (EOB) summary that suggests the patient would owe $94,000 for the neuromonitoring that occurred during the back surgery. If you recall, the Explanation Of Benefits is what I wanted to see in the $5,000 nitrous case. I will need to look back at this series and if NPR ever took the time to educate readers on the difference between an EOB and an actual medical bill.  The article goes on to say this particular patient is worried about getting a bill in the mail for this service.

“Every time I go out and I collect the mail, I’m wondering, ‘Is this the day it’s going to show up and we’re going to have to deal with this?’ ” she says.

A Year After Spinal Surgery, A $94,031 Bill Feels Like A Backbreaker

Sitting around waiting for the bill to come should not be acceptable behavior for Max Out of Pocket readers. We engage, learn, and push back when things don’t make sense. The EOB was dated 11/14/2018 and the last time I checked the calendar we were sitting solidly in June 2019. Consumers need to proactively push back and understand the healthcare system if we ever want to fix it. Waiting around to get screwed by this system does not fit the bill. No pun intended. Nowhere in the article does it suggest the patient actively tried to deal with this issue directly with the company (TRAXX). It does say the company (TRAXX) didn’t respond to NPR when they were requested to comment about the charge, but that doesn’t surprise me considering HIPPA regulations. Based on the quote above, I am making an assumption here that these attempts were made by NPR since the article didn’t clarify. It is pretty doubtful the real price for these services was $94,000, but more likely a clerical error that occurred during the billing process. The entire surgery for the hospital stay was just north of $100,000 so it is not reasonable to think the separately billable neuromonitoring would come close to that. I actually think it is questionable if the company will ever try to collect this balance from the patient. Since it has been 6 months since the claim was processed by Blue Cross, it seems likely they don’t intend on actually billing the patient and maybe even identified the error through internal audit. Is it unfortunate the patient got this EOB? Yes. Is it unfortunate that this provider may have been out-of-network? Yes. But it wouldn’t hurt for the patient to follow up with two or three escalated phone calls to be sure she actually owes this. If the answer was yes – then we need to jump all over TRAXX and question them about their pricing, especially if we can establish the problem extends beyond our current sample size of approximately one patient receiving neuromonitoring.

There are also other things at play here like the untimely billing of the patient or potential financial aid through TRAXX. We can challenge untimely billing and even the out-of-network provider issue. It may take a little work, but it can be done. The biggest takeaway from the article is this, and this goes for any non-emergent service you receive from a provider;

Check with your insurer to determine if the neuromonitoring provider is within your network and to make sure the estimated charge will be covered.

A Year After Spinal Surgery, A $94,031 Bill Feels Like A Backbreaker

I am still a fan of the “Bill Of The Month” series. I know firsthand there are serious billing errors and issues out there that have direct impact on patients. There is a lot of good coming from this and I should probably back off some of the technicalities the articles are missing. But I also have concerns when I see something that just may be a clerical error used to depict a broken healthcare system. I am not sure how productive it is for me to troll these articles, which is why I didn’t dedicate a full post to this one. “Trolling” is new internet slang I picked up early in my questionable blogging career. Hopefully I am using it in the correct context. It may be more productive for me to just keep writing about the history of the FICA tax.

On with the staycation. Thanks for reading.

~Max

How was your June? Any summer plans?

The post Max Out of Pocket – June appeared first on Max Out of Pocket.

If you haven’t caught the trend yet, Max OOP has been checking in on the Healthcare REIT Experiment every payday the last few months. Since I get paid over 26 pay-periods, this regular schedule works out to every two weeks. This review usually comes with a quick lesson on REITS followed by what has probably become a predictable addition to the Max Out of Pocket medical office building portfolio. I am hoping this portfolio will eventually generate some passive income to help fund this little blog project or pay down my future healthcare expenses. It may also lose money, but we will learn from it either way.

Well, spoiler alert. Max OOP added another 60 shares of Physician Realty Trust (DOC) at a price of $18.28 per share to the Healthcare REIT portfolio. This transaction occurred during my lunch break on June 7th. Pretty amazing that we live in a day and age where your Average Joe Max can use a cell phone to pick up some medical office buildings on a whim during a lunch break. This took the total position to $21,665.70 and increased my projected annual income from the investment to just over $1,100.

What a great segway into our next exciting subject, dollar-cost averaging.

Dollar-Cost Averaging

You might recall Max OOP whining about the price tag of Physicians Realty Trust (DOC) during my last REIT update. Paying $19.00 was almost $0.80 cents more than what I paid just a month prior. That questionable 50-share-purchase took an extra $35 out of my pocket compared to the same transaction a month prior. That’s a lot of lunch money. Does that make me a sucker? Not necessarily.

Dollar-cost averaging can help make sure I don’t pay too much all at once for a long term investment. It helps even out the cost basis over time. The cost basis is the original value you pay for the investment at the time of purchase. So the lunch break transaction that occurred on June 7th represents a cost basis of $1,103.

Dollar-cost averaging is a strategy where someone like me buys a similar amount of an investment on regular lunch break intervals. The purchase usually occurs regardless of the price of the investments. For Max OOP, the investment has been medical office buildings, my interval has been payday (every two weeks), and my purchase has been between 50 and 100 shares of DOC ($1,000 – $1,500). My lunch menu on the other hand? I usually go with a sandwich.

Since stocks can be volatile (go up and down), dollar-cost averaging your way into a long-term investment can help neutralize some of the natural price fluctuations we see in a stock. Since some of those fluctuations are driven by the overall stock market and have nothing to do with the individual stock, it can be risky to buy a whole bunch of medical office buildings all at once using a single stock. This is because you might be buying at the top and not even know it.

Here is a technical definition of dollar-cost averaging directly from Vanguard:

A method of investing that entails purchasing a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices rise. Using dollar-cost averaging, you can avoid the risk of investing a lump-sum amount when prices are at their peak.

Vanguard Glossary – Dollar Cost Averaging

Since my dollar amount has not been fixed, my investment intervals have not met the ‘technical definition’ of dollar-cost averaging. But the concept still applies. Since I have changed the amount of the investment depending on the share price, it could be inferred that there is a component of market timing in my short investment history with DOC (Physicians Realty Trust). Generally, trying to time the market is a bad strategy. That said, DOC isn’t the market; it is an individual stock. Still, probably not a good idea to try and time an individual stock either. Since I already broke a rule by picking an individual stock in the first place, why not break two rules? Max OOP has always been a bit of a rebel. Or, maybe he just gets bored at lunch time. Since everyone else is on their phone not conversing with the general public, I figured I would find something else to do.

Over the course of the Healthcare REIT experiment, my cost basis has ranged from $14.61 all the way up to $19.10. My total cost for the portfolio (including fees) has been $19,180.10. Since I have purchased 1,197 shares to date, that puts my average cost basis per share at $16.02.

$19,180.10 / 1,197 shares = $16.02 average cost per share

Here is an updated look at the portfolio as of 6/12/2019:

Negatives

Dollar-cost averaging has added some additional expense to the process of building out the Max Out of Pocket Healthcare REIT portfolio (yes, we need a better name). My brokerage firm charges $4.95 per transaction, so it has cost me just over $55 to build this position up until this point. If I would have put $19,180.10 into this investment all at once in one lump sum, I would have saved about $50 since I would only have one $4.95 transaction fee.

Max OOP likes to joke that $55 is much cheaper than the 3-6% in transaction fees Mr. or Ms. Realtor Agent might charge during a traditional physical real estate transaction. Maybe someday I will be able to handle buying houses in-between sandwich bites during lunch for $4.95 per house. Until that app comes out, I will opt to rent.

$19,180.10 X 6% = $1,151 (ouch)

Dollar-Cost Averaging To Retirement

Most people, including Max OOP, are forced into a dollar-cost averaging strategy when saving for traditional retirement. This is mostly due to income and asset constraints. In other words, most of us don’t stumble into $100,000 and then suddenly have to decide if we are going to invest it in one lump sum or dollar-cost average it into the stock market over time. If you are maxing out your 401(k) or 403(b) over 26 pay periods in 2019, you are putting about $731 into the stock market every two weeks. Since you are putting a fixed amount ($731) into the stock market on a fixed interval (every two weeks) regardless of the share price, you technically meet the definition of dollar-cost averaging.

Since the total stock market tends to go up, I actually prefer to front-load everything into the stock market and get $12.00 pay checks, so I lose some of the price protection dollar-cost averaging provides. I also happen to know time in the market is more important than timing the market and it is statistically more effective to front-load, but more on that another time.

Where Do We Go From Here?

So will Max OOP put a formal dollar-cost averaging strategy in place for the Healthcare REIT experiment?

I’m actually not sure where this REIT experiment is going at this point. I had dreams of creating a money generating cash machine that would spit out rental dividends on a conveyor belt every quarter. I mean, how else am I going to trick people into learning about healthcare without attaching something like “passive healthcare income” to the story?

I also had thoughts that I would grow it to an even $25,000 and go into a monitoring phase. I would collect my passive income for the next 10 years and call it a decade. But then again, what would I do on my lunch breaks? If I were to continue to grow the investment beyond 25k, using a dollar-cost averaging strategy may help Max OOP put some boundaries and restrictions in place. This would theoretically take any emotions and thoughts that I could time this stock completely out of the equation and put everything on autopilot.

The Max Out of Pocket dollar-cost averaging statement might look something like this. “For the next 26 pay-periods, Max OOP will invest an even $2,500 each pay period into healthcare REITS regardless of market pricing.” It would also assume I continue to believe in the healthcare REIT thesis and investment for the long term. I would also probably need to include some diversification into other healthcare REITS at some point. Unfortunately, we are seeing additional tenant issues pop up with DOC, a risk I was well aware I was taking. LifeCare filed for Chapter 11 bankruptcy on May 6th and DOC happens to own three of their properties. Two are in Texas. Why can’t Texas keep its act together?

Final Thoughts

Before the birth of my Healthcare REIT portfolio and even the Max Out of Pocket website, I built the entire core Max Out of Pocket portfolio using a dollar-cost averaging strategy into the total stock market index. I happened to be investing during a ten plus year bull market and it put me well on the path to early retirement. Dumb luck? Maybe. But it also took a lot of time and effort learning to earn, cut expenses, and invest the difference. So far, we have just been taking concepts we already know and loosely applying them to the Healthcare REIT Experiment. At some point, it may make sense to tighten things up around here and get Max OOP back in line. But for now, this is still just a small part of the total Max Out of Pocket portfolio. I have said it once and I will say it again: Total Stock Market Index Fund investing is the core of my investment strategy, this healthcare REIT portfolio is just a side project during my lunch breaks.

Believe it or not, after all this dollar-cost averaging I was still able to sneak out early last Friday to start a four day trip to New Brunswick, Canada. A much more entertaining subject, but some days we have to stick with business. Sorry for the delayed post, we got back last night.

As usual, this is not a recommendation to buy this or any other stock and you are responsible for your own investing decisions.

Max Out of Pocket for the Healthcare REIT experiment so far = $54.45

The post Dollar-Cost Averaging On my Lunch Break appeared first on Max Out of Pocket.

One thing Max OOP has picked up over the years is that buying stocks based on sex appeal usually isn’t a good idea. If you are investing your hard-earned dollars into a company, it is a really good idea to go on a date or two to get an understanding of how that company uses your dollars to put even more dollars back in your pocket. Take the building above; it’s nice to look at, but would you buy it if it was located in the middle of the Nevada desert with no one renting it? Probably not.

Now, historically, Max OOP would only buy the entire stock market so I didn’t have to worry about little details like this. A boring index fund strategy that will likely remain the core of my portfolio forever. It also isn’t very entertaining and there isn’t much more for me to learn there. That said, it is a pretty solid strategy for the wealth accumulation phase.

In fact, when I was front-loading my entire salary into my 403(b) earlier this year, I was dropping the entire 403(b) contribution into a fund (VIIIX) that tracks the S&P 500. In other words, I was taking an ownership in 500 of the best companies on the planet. This is the closest I could get to buying the total (entire) stock market in that particular account. Oh, and my paychecks came out to about $12.00.

But I also knew that the S&P 500 looked pretty expensive compared to historical averages. Even now, the Shiller price to earning ratio for the S&P 500 is sitting at 29.10 at the time of writing this. The historical average is 16.63 and the median is 15.72. In other words, the price I paid for the entire S&P 500 was about double the historical average. Does that make Max 00P a sucker? Not necessarily, there is a lot that goes into the price to earnings ratio. But it is definitely something to think about.

I also have no idea what the underlying investment criteria/strategy is for the entire stock market. I only know all the companies in the stock market are trying to get rich, and that is probably all Max OOP really needs to worry about.

But Physicians Realty Trust (DOC) on the other hand, has clear direction when it comes to their investment criteria and strategy. We already learned that DOC is a REIT that generates revenue by renting medical office buildings to tenants. But here at Max Out of Pocket, we always want to learn more.

DOC’s Investment Criteria

Max OOP likes to consider these guiding principals for DOC’s future real estate investments. If we start to see investments deviate from these principals, we need to make sure we understand why.

Physicians Realty Trust’s (DOC) investment criteria is short, sweet, and even Max OOP can understand it. This is one of the reason’s Max OOP selected this particular REIT. We aren’t talking about the recipe for Coca-Cola here; it is outlined right on their public webpage dated 8/27/2018.

Physician Realty Trust Investment Criteria

This is how it opens:

“At DOC, we invest in stabilized high-quality healthcare properties leased to physicians, hospitals, and healthcare delivery systems across the continuum of care and necessary for the direct delivery of clinical care. We invest in properties where we can develop strategic alliances with financially strong healthcare delivery systems and providers that offer need-based healthcare services in sustainable and growing markets.”

Max OOP likes high quality healthcare properties leased to financially strong healthcare delivery systems in growing markets. I think their strategic alliance and relationship approach got us out of trouble when we had tenant issues earlier this year.

I also like healthcare delivery systems that need my property for the direct delivery of clinical care. Calling out direct delivery of care in this opening tells me DOC is incorporating recent competition from the telehealth industry into their strategy. Telehealth is all the buzz these days, but you can’t set a broken arm through a computer screen; it needs to be directly delivered to a patient in a medical office.

They go onto to say that they prioritize their investments into medical offices, outpatient treatment & diagnostics, physician group practices (i.e. more medical offices), and ambulatory surgical centers. Max OOP’s career has been spent mostly working for hospitals, and I happen to know payers (including Medicare) are doing everything they can to keep patients out of the expensive inpatient hospital setting. They want healthcare handled in a lower cost outpatient setting.

But What Kind Of Buildings Do We Buy?

The investment criteria further defines what criteria the actual healthcare facility needs to meet before they invest my hard-earned money into it. In short, the buildings are young, healthy, and live in energetic areas.

This comes directly from Physicians Realty Trust’s Investment Criteria:

• Tenancy
  • Stabilized occupancy greater than 90%
  • Affiliated with a market-leading health system or a large multi-specialty physician group
  • Financially strong; credit tenancy
  • Average remaining lease term of 8+ years
  • Preference towards specialized uses (e.g. ASC, HOPD, CON)
• Physical Asset
  • Larger than 50,000 square feet
  • Less than 15 years old
  • Class A
• Market
  • Top 100 MSA
  • Market with population and income growth
  • Located in a medical micro-market; close proximity to other MOBs, hospitals
  • Growing outpatient market; particularly if off-campus

From Max OOP’s seat on my comfortable couch, these are high-quality physical assets, with higher quality tenants, in high-quality markets. They prefer buildings with specialized uses which is in line with the direct delivery of clinical care. Our buildings are younger. I have worked in dated hospitals with dated buildings around them and I will tell you, the patients notice. They want to see their provider in newer facilities, presumably less than 15 years old. Perception matters when it comes to food and health.

Development – Knowing What You Don’t Do

Lastly, DOC outlines that they will not perform the actual development of a property. That said, they do reserve the right to invest in development opportunities that are sponsored by healthcare delivery systems, are 75% pre-leased, and meet their general criteria above.

I am glad DOC knows what they do well and do not stray too far from their core business model. Interestingly enough, Max OOP is straying from what he does well (total market indexing) and dabbling a bit in Healthcare REITS. Oh well.

Northside Medical Midtown

Now, let’s take a quick look at the Northside Medical Midtown building pictured above which is located in the heart of Atlanta’s midtown area. This building is over 160,000 square feet, brand new, and a Class A development. It was completed through a strategic partnership between Physicians Realty Trust and Northside Hospital. This building is used for perinatal medicine, colon and rectal care, primary care, physical therapy, imaging, oncology, urgent care, OBGYN, plastic surgery, gastroenterology, and ophthalmology. I’m not sure we can get more diversified than that and these are all specialties that require the direct delivery of care. The building is located in one of the fastest growing sub markets of the region with 15,000 residents and 65,000 daytime workers. Max OOP thinks this is very much in line with the investment criteria outlined above.

Max OOP’s Take

Not only are these assets sexy, they have a solid personality that will survive a long-term relationship.

Having guiding investment principals established keeps things grounded. We will easily be able to see if DOC starts to deviate from these principals as they secure additional properties. That said, strategy and business can change overtime, we just need to make sure we understand why.

I think we all know by now Max OOP is trying to build some meaningful passive income with this investment experiment. Passive income that will be around for several years that will even follow me into early retirement. It may even come in handy as I battle rising healthcare expenses. The qualitative investment criteria I see above leads me to believe the 5% yield is sustainable and hopefully we will also see some capital appreciation over the next few years.

Since Mrs. Max OOP teaches AP statistics, I verified yesterday when we were hiking that I was using “qualitative” correctly here. She agreed, but she said “categorical” would also work. Max OOP needs to be careful when he busts out big words like this.

Since Friday was payday, Max OOP punched a few keys on my ten-key, clicked a mouse, and added another 50 shares to our DOC empire. And speaking of capital appreciation, my readers must be driving up the stock price because it was a bit more expensive this week. Hence, I only bought 50 shares, but let’s keep the good times rolling.

This puts my total ownership in DOC up to 1,137 shares valued at $21,614 at the time of writing this. I am projected to net over a $1,000 in annual ‘rental’ dividends (as I like to call them) over the next year.

Just as you wouldn’t marry someone because Max OOP told you to, I wouldn’t invest in a company just because Max OOP is doing it. You need to do your own research and this is NOT a recomendation to buy DOC. You are responsible for your own investing decisions.

Max Out of Pocket = $4.95 Fidelity transaction fee to grow the portfolio by 50 shares.

Do you struggle to stay the course in total market index fund investing?

The post Healthcare REIT Experiment – How Does DOC Make Me Money? appeared first on Max Out of Pocket.

Max OOP has been running an experiment. I have been buying up shares of Physicians Realty Trust (DOC) to drum up some passive income and learn a thing or two about REIT investing. Who knows, this healthcare investment might end up paying down some of my future deductibles, coinsurance, and copays. It might also lose money. This is quite the deviation from my core investment strategy of total market indexing, but it is also a lot more entertaining.

The DOC conference call occurred on May 1st, 2019 to discuss operating performance for Q1 (January 1st – March 31st). As promised, Max OOP was in the background listening carefully as the CEO and Directors provided an update on how my business was running. I can say “my business” because I am part owner. There were also several really smart analysts on the call asking very specific questions. As an amateur, I stay pretty quiet. Don’t want to risk an embarrassing situation for Max OOP.

The format of the call starts with some prepared remarks by Mr. John Thomas (CEO) followed by more granular questions by the analysts.

Got Tenant Issues?

On the call before this one, we found out that a tenant in El Paso, Texas unexpectedly shut down operations of a surgical hospital. Evidently, both the onsite physicians and Physicians Realty Trust (DOC) were not given much notice and it essentially ended the lease (and thus rent payments) on the medical office building and hospital.

This is where, if Max OOP owned a rental house and found himself in similar circumstances, I might become stressed out and scrambling to resolve the matter. Not exactly passive income in my mind. With DOC, I have talented directors and underwriters doing the work on my behalf.

One of the reasons I like Physicians Realty Trust is their relationship approach. They were able to quickly take this bad news and re-tenant the medical office building and hospital with a solid 10 year lease with more favorable terms than before. The lease is with a better, more profitable national healthcare system.

Now, it isn’t all sunshine and rainbows. The lease doesn’t go into effect until June 1st with rental payments to begin on July 1st, 2019. Hopefully DOC will learn from this experience, but things like this are bound to happen when you own about 250 properties. This several month gap in rent nonpayment certainly had an impact on the income statement and funds from operations for Q1 2019.

Funds From Operations (FFO)

As I like to say, since this is a learning experiment, we need to keep learning. Now, we don’t want to scare anyone off, so we will try not to get too technical here.

Funds from Operations is a good indicator to follow in the REIT world. It is basically taking all of your earnings, adding back in depreciation and amortization, and also subtracting any gains on sales. For those of you who follow regular stocks, it is very much like earnings per share. It is a good measure of cash generated by a REIT. I know this sounds complicated, but stay with me. We will just stick with depreciation for today.

Generally Accepted Accounting Principals (GAAP) require REITS to depreciate their medical property investments over time using accepted depreciation schedules. Since a lot of real estate technically doesn’t depreciate (but appreciates over time), it makes a lot of sense to add this back into net income.

I pay my landlord about $1,000 per month for a house she owns outright with no mortgage. On paper, the house I live in technically depreciates (loses value) every month just like a car would. Let’s say that value loss is $200 a month. Let’s also say my refrigerator goes out this month causing a $300 expense to my landlord. My landlord is left with $500 in income. Since my landlord doesn’t technically have to pay the depreciation cost (she owns the home which has actually increased in value since I lived here), we would add that $200 back in to get her funds from operations, $700. Since she is the only share holder of the house, she gets to keep that entire $700 in cash this month.

Phew, we got through that. That example is overly simplified; you can probably find more info on the world wide internet.

Physicians Realty Trust funds from operations (FFO) for Q1 2019 (January – March) was $0.25 per share. This was a drop of $0.02 per share from the last quarter mostly due to the tenant issue above and some increase in property tax expense we saw across the portfolio.

Since I get paid $0.23 per share in ‘rental dividends’ per quarter, the FFO above should still cover Max OOP’s ‘rental dividend’. We also hope to see FFO operations recover later in 2019 once the new tenant lands in our building.

Max OOP Reaction

I love passive income. I am so glad DOC has strong relationships in the marketplace to resolve issues like this quickly. I am also grateful to have some of the best experts in the industry working on my behalf everyday. I was also glad to hear management take the time on the call to congratulate two members of their team on new additions to their family. It sounds like a great culture over at DOC.

So yesterday, being payday and all, average Joe Max OOP punched a few keys on the keyboard and expanded the empire by 87 shares. This will take my projected annual passive income to just over $1000 per year. How is that for conviction and support for the REIT experiment? Total stake in DOC = $19,620.

1,087 Shares X $0.92 Dividends/Year = $1,000 projected annual “rental” dividends

Just a friendly reminder, I am not a financial advisor and this is not a recommendation to buy this or any other stock or REIT. I am just some average Joe Max from the internet; you should do your own research. But please, do enjoy the entertainment.

Here is a link to some nicely organized slides produced by DOC with a lot of very useful financial information to help you on your road to riches.

The post Healthcare REIT Experiment – Tenant Issues, FFO, $1000 Passive Income appeared first on Max Out of Pocket.

You know, it’s actually pretty simple.

Avoid buying large trucks with over-engineered tailgates to get you to and from the office. Take a pass on the $500,000 cookie-cutter house in the suburb that looks exactly like your neighbors’. Say no to the $150 monthly CrossFit membership fees. Dodge the $5,000 emergency room bills (with the help of Max OOP). 

The byproduct of several reasonable decisions over time is usually an obnoxious amount of money left over every month and a relatively short runway to financial independence.  

Next thing you know, you are buying medical office buildings (MOB) just to learn about a new investment. An investment that will (hopefully) deliver even more cash. 

Yesterday was payday. Since Max OOP is no longer getting $12.00 pay checks, it was a good day to look into expanding our medical office building empire. As you may know, we have been buying medical office buildings this last year through our Real Estate Investment Trust (REIT) called DOC. Just a reminder, our core investment strategy is total stock market index funds. We know we probably can’t beat the market, this is just a side project.

I decided to add 75 more shares of DOC to my empire rounding out the position at a nice, even 1,000 shares. The price was cheaper than earlier this month, coming in at only $18.34 per share for about $1,400 total.

Since each share normally pays $0.92 per year in dividends, after this addition I anticipate $920.00 in cash flow from this investment over the next 12 months. Max OOP likes to think of these dividends as rent checks coming from the tenants in my medical office buildings. The rental dividend will be paid in four equal installments of $0.23 per share, or $230 every 3 months. I love passive income. 

1000 Shares X $0.92 = $920 annually

Since this is a learning experiment, we need to start learning a few things.

Conference Calls

Most companies have quarterly conference calls to talk about how the company is doing financially. The company’s CEO and directors usually release important news during these calls and provide updates on material developments. Does your total market index fund do that for you?  (joking)   

Physicians Realty Trust is no different than most companies. They will have their conference call at 10am on 5/1/2019 to discuss how the first quarter (Jan –March) of 2019 went. If you own a stock or REIT, you should probably take the time to listen in on their quarterly update and take notes on significant developments. Trust me, Max OOP will be on the call Wednesday. If the CEO seems drunk and erratic, I will likely sell all of my shares shortly after the call. Pretty unlikely, but you never know.

At times, investors will overreact to news shared on a conference call. If the share price drops too much after a conference call due to some news that is immaterial to the long-term performance of the investment, it can be a good time to buy shares while they are on sale. Max OOP saved some of this week’s paycheck in case this scenario presents itself on Wednesday. 

Yield

It is sometimes helpful to think of yield like the interest you get on your savings accounts. Yield on a REIT comes with a lot more risk than saving accounts, but the concept is very similar. 

The yield you get on a REIT is basically the annualized ‘rental’ dividend you will receive as it compares to the total investment. Since my 1,000 shares of DOC are worth $18,320 (as of Friday), and will pay about $920 over the next year, the yield is just over 5% annually.  This yield is directly impacted by the share price. 

$920 / $18,320 = 5.02%

Another good way to look at it is annual dividend divided by stock price.

$0.92 / $18.32 = 5.02%

My actual cost (purchase price) for these 1,000 shares was only $15,541 – so my yield on cost is a little higher. I am getting an annual yield of 5.92% on every dollar I invested. 

$920 / $15,541 = 5.92%

The Empire

So this is how our medical office building empire looks as of yesterday. You can see the date I purchased each group of shares, the number of shares purchased, current value, cost basis per share, cost for the position, and total gain on the purchase including dividend payments. Take note – the shares I purchased on 4/5/2019 are down $24.00. The cost includes the $4.95 fee Fidelity charges for each transaction.

Once again, it would be wildly irresponsible to make a similar investment just because some random person on the internet is doing it. This is for entertainment purposes only. Make sure you do your own research; stocks crash all the time for various reasons. Check out this healthcare REIT; it got cut in half for a multitude of reasons.

Max Out of Pocket to build the empire = 8 Fidelity Transactions X $4.95 = $39.60

Do you own any REIT investments?

The post Healthcare REIT Experiment – Yield, Conference Calls, and Expansion appeared first on Max Out of Pocket.

Okay, several medical office buildings, and a few hospitals. They all have tenants that will pay me rent. I love passive income.

Mrs. Max OOP and I sold our house down south a few years back. It was a great house, and we miss it very much. But, we will now be renters for the foreseeable future.

This took our real estate equity that we can actually “touch and live in” to $0.00. With such a low real estate allocation and the stock market stuck on high, I eventually got interested in looking for a way to buy more real estate without actually having to live in it.

In entered Physicians Realty Trust (DOC) to the party. A REIT that is just what the doctor ordered. 

So What Is A REIT?

In short, Real Estate Investment Trusts (REITs) are companies that own and often operate income-producing real estate. Think rental property. They are required to pay a minimum of 90% of their taxable income to shareholders as dividends. Owning one of these bad boys is basically like being a landlord without all the midnight phone calls to fix things. DOC specifically targets/owns medical office buildings that are then rented out to tenants that provide healthcare to patients. DOC owns over 250 properties in 30 different states, and over 90% of its portfolio is medical office buildings. 

Hey, this sounds like an investment even Max OOP can understand!

Since a lot of this blog is about healthcare, I figured why not specifically own a healthcare REIT? Nothing wrong with investing in and making a little money off the very system I am determined to fix. After all, I have dedicated my working years to this industry and this still seems like a solid long term investment to consider with the baby boomers aging out. Thanks Dad!

Mr. and Mrs. Max OOP don’t have time to manage traditional rental houses at this point since we are both still working. Since we are quickly approaching financial independence, and our expenses are low, we have access to W2 cash earned from our day jobs. We have been using this cash to build an “empire” in healthcare real estate with minimal effort.  Since I already front-loaded my 403(b) for 2019, I am no longer getting $12 paychecks. Now we have EVEN MORE free cash to dedicate to this. 

Max OOP Buys A REIT

Last year at this time when I got done front-loading, healthcare REITS looked to be trading at a discount compared to the rest of the market. Much of the beat down in their price was related to current/future rising interest rates and the unknown future of the American healthcare system. These are both still risk factors to consider today along with other risks Max OOP doesn’t even know about yet. This is why we run experiments. 

 “What?!?!? Is Max OOP really a stock picker now?  I thought that was a loser’s game?” 

It is. But let me run my experiment. Maybe someone smarter than me is reading this and will convince me otherwise and get me back on track.

Buying large sections of the entire US economy through total stock market index fund investing will always be our core investment strategy. But with the overall market trading at a premium and our physical real-estate equity at $0.00, I thought this would be a fun experiment with a small sliver of our portfolio. By the way – yes I know we technically own a small amount of real estate through my total stock market index.   

To kick this experiment off strong, I purchased 300 shares of DOC costing $4,398 back on 2/28/2018.  I paid $4.95 in commission to Fidelity.  Not bad – my realtor would have probably hit me with a 6% commission charge for about $260.

I added additional smaller positions in March, April, May, and July of 2018.  Since I am still planning on holding DOC for several years, I still like DOC at this price.  So yesterday, I bought another 65 shares of DOC for $18.62 per share for a cost of $1,215.  This takes our total empire to 925 shares valued at about $17,200.  Since DOC typically pays about $0.92 in dividends per share every year, we will expect to receive about $920 in cash dividends from this investment over the next 12 months.  As I said, I love passive income.

Just a side note. It would be wildly irresponsible for someone to make a similar investment without doing their own research just because some random person on the internet is doing it. 

Max Out of Pocket = $4.95 Fidelity commission X 7 Transactions = $34.65

Do you like REITS?

The post How I Bought a Medical Office Building – The Healthcare REIT Experiment appeared first on Max Out of Pocket.