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I have taken a bit of a hiatus from writing about my medical office building portfolio. There are a couple of reasons for this, but mostly it’s because I did not want to be tone-deaf to the deadly pandemic currently tearing through our country. Frankly, writing about making money off medical office buildings has been one of the last things on my mind.
My original idea was cute. Max from Max Out of Pocket would build a portfolio of medical office building REITs that would be structured in such a way that it could pay down his annual max out-of-pocket ($6,600) every single year from passive dividend income. A form of “healthcare independence” paid for directly by the industry. An industry that almost burned me out.
Max would go down as a hero who finally beat the system.
But then this thing called COVID-19 showed up and the industry got hit. Hard.
My investments did fine, but clinical folks have been stretched to the brink. Hospital systems and other healthcare companies around the country have been mobilizing a response to the pandemic. It has been unlike anything we have ever seen, and pretty amazing. That’s what we should be talking about, not investments.
I also had the realization that the industry didn’t burn me out, I burned myself out. That’s on me. These days, I am really enjoying my work and the contributions I make to the healthcare industry. That includes this blog.
All that said, I do not like leaving things open-ended. So, I wanted to go ahead and provide an update of where things stand with my MOB portfolio and where we will be going from here. I find writing about this stuff promotes action, and action produces results. The goal of this series was to learn a few things, and we did just that. Hopefully, that can continue.
With that, not only am I pumping the brakes on the project for 2021, I will be simplifying things a bit.
Max Almost Made It
I still think this was a good idea.
In fact, I almost made it. As of 12/12/2020, the $75,000+ portfolio was projected to generate almost $4,000 in dividends during 2021.
We could already easily cover my $3,300 family deductible with dividends from these investments. Every single year.
We are only $2,600 away from being able to completely cover our $6,600 annual max out-of-pocket.
But we are going to have to leave it there, at least for now.
The truth is, Max’s guilty conscience is not behind this decision to slow things down. Even with everything going on, we still need someone to invest in these buildings and provide a place for patients to receive care. That’s just the way the world works right now. And I really do not have any problem if that investment activity happens to generate a few dollars of income. In many respects, these investments support the healthcare industry.
But now is not the time for a victory lap.
Max Simplifies His Personal Finance Life
The main reason I am putting things on pause is for my own personal agenda. Simplicity and finesse. I have been making a deliberate effort to simplify our personal finance life ahead of 2021. This includes consolidating accounts and cleaning up target allocations. I am even creating an investor policy statement to keep me in line. By the end of the day, a five-year-old will be able to manage our finances.
Having a medical office building REIT portfolio spread out over three different accounts is somewhat inconvenient. So, we will be looking to streamline that, while keeping the heart of the portfolio intact in our taxable brokerage account. Additionally, as I firm up my investor policy statement, it’s starting to look like having $75,000+ of my liquid portfolio tied up in medical office buildings will be a bit much. That is, at least in the short term.
I should also mention that I have lost some interest in the project. I am learning that I only have so much capacity for it. Keeping track of individual stocks can be a challenge considering everything else I want to be focusing on.
This is something I was aware of when I bought my first medical office building, but it has become even more evident in 2020. Ultimately, my interest in other things is starting to take priority.
So where do things stand? The portfolio is up over $13,000 since I started.
Let’s start with the lesson of consistency. Like clockwork, I have stayed committed to dollar-cost averaging into this portfolio every two weeks. I have contributed every payday for over 18 months. Sometimes, I did it on my lunch break.
However, back in July, I decreased those investments to $500 increments as I started to focus on other things. That included funding both a 50k emergency fund and a 100k opportunity fund. Back in March, I quietly added a third REIT to the holdings called Welltower. It has done nicely since I purchased it and is up almost $2,500 as of 12/12/2020. No, I didn’t buy it just because I liked the name of the company. Though, “Welltower” does have a nice ring to it.
Our Risky and Speculative Investments
At the time of writing this, the portfolio has grown to over $78,670 and is spread out across three different accounts. I categorize this investment as a portion of the “speculative/alternative” allocation of our portfolio. You know, things like Bitcoin and marijuana stocks. But I happen to consider the purchase of any individual stock speculative. That allocation is required to remain less than 10% of our total assets.
In other words, these REITs are part of my “fun” investments.
Where do I keep these medical office buildings? This is how things are currently split up.
- Liquid Brokerage ($40,407)
- Traditional IRA ($28,444)
- Roth IRA ($9,819)
Having this in three different accounts has become a problem. Although a minor problem, it is something I am looking to simplify by eliminating the positions in the two red accounts.
Return on Investment
As of 12/12/2020, between dividend and capital gains, this project has netted $13,660 over the last two years. That is a 19.54% return on my original investment of $69,913.
Not bad considering almost half of that was invested in the last year alone. That is more than enough to put a roof over my head for an ENTIRE year.
Exactly $4,903 of that came through passive dividend income, and the rest is holding as an $8,757 unrealized capital gain on paper.
Here is a brief history of the dividend payouts. I sometimes refer to these as my rent checks:
- 2018 Q2 = $88.78
- 2018 Q3 = $152.72
- 2018 Q4 = $197.80
- 2019 Q1 = $197.80 (blog starts)
- 2019 Q2 = $197.80
- 2019 Q3 = $314.41
- 2019 Q4 = $455.86
- 2020 Q1 = $578.46
- 2020 Q2 = $843.35
- 2020 Q3 = $915.62
- 2020 Q4 = $960.70
- Total = $4,903.68
Man! And things were just starting to pick up steam!
Like I mentioned, the MOB portfolio is projected to generate another $4,000 in dividend income in 2021. That would cover almost 8% of our entire 2019 spending of $51,436 without lifting a finger. And we will spend less than $50,000 in 2020.
$4,000 / $51,436 = 7.8%
Time to Reorganize
However, the time has come to reorganize the portfolio. I was initially trying to demonstrate the difference between taxable accounts, tax-exempt accounts, and tax-deferred accounts. That exercise put individual REIT stocks in my retirement accounts. For me, having individual stocks in my retirement accounts is not the best practice. Therefore, it is something I have decided to move away from. I generally reserve those accounts for index funds only.
So, I have opted to move the entire portfolio into our taxable brokerage account. With that, I will reduce the balance back down to about $50,000. I still remember when the portfolio hit $50,000 for the first time.
The revised goal is to generate about $3,300 per year ($275/month on average) in taxable dividend income which will cover my 2021 annual family deductible.
I will then let this portfolio percolate for all 2021.
I will also likely stop regular dollar-cost averaging contributions for 2021 to focus on correcting my portfolio’s overall target allocation. That said, I do reserve the right to make lump sums contributions as the market fluctuates, assuming I stay within target allocations dictated by my investor policy statement. We will get to that another day.
Here is the balance in my brokerage account as of 12/12/2020. This is where the entire portfolio will ultimately land.
This comes up to just over $40,000 and is where a majority of the portfolio lives. As is, we are projecting annual taxable dividend payments out of this account to come in at $1,973 in 2021. This income will all be taxable, and I have a solid understanding of how that works.
- DOC : 971 shares X $0.92 annual dividend = $893.32
- GMRE: 820 shares X $0.80 annual dividend = $656.00
- WELL: 174 shares X $2.44 annual dividend = $424.56
$893.32 + $656 + $424.56 = $1,973.88 projected 2021 income
We are currently showing an unrealized total capital gain of $5,924 which will all be considered long-term capital gains in 2021. That could be something I look to harvest in 2021 at a lower tax rate.
As for consolidation and selling off assets, I will start with our Roth IRA account since that is the smallest position outside of my brokerage account.
As I write this, that balance sits at $9,819.20 and shows a total gain of $890.61. That does not include the dividends that paid out since establishing the position. The only MOB investment in this account is Physicians Realty Trust. I know exactly how they make me money.
I will start selling off these investments in December 2020 and attempt to close out the position by the end of the year. I will dollar-cost out of this investment over the next few weeks and make offsetting purchases in my brokerage account until I get back up to $3,300 in annual dividend income.
Since this is a Roth IRA, I will never be taxed on that $800+ capital gain or any of the dividends already received.
This position might take me a few months to simplify. It holds $28,444 and is spread out over two positions of DOC and GMRE. These will be slowly sold off and replaced by some form of the total stock market through an index fund.
Since this is a traditional IRA, these capital gains and any dividends already received will not be taxed until I withdraw the funds at traditional retirement age several decades from now.
It was evident when I started this blog that I needed a hobby. In addition to the blog-writing itself, the MOB portfolio has undoubtedly been an interesting hobby for me. At $13,000, it probably pays more than selling (insert shitty product here) to my friends and family. Hopefully, less annoying, too.
But the time has come to simplify things.
I am not pulling the plug on the medical office building portfolio altogether, but we will be downsizing a bit. When all is said and done, the entire balance will live in our brokerage account and hopefully generate about $3,300 in passive “rental” income. Things should be much easier to keep track of as we move forward.
This transition does not need to happen overnight. The goal of this post is to prompt action and get things moving in the right direction. I think this will happen over the rest of 2020 and even as we move into 2021. I will post an update when this is complete.
Basically, my goal here is to get all “alternative/speculative” investments out of my retirement accounts. They really do not have a place there and it goes against my overall strategy. Above all, I am going for automation, simplicity, and systemness (I like that word).
Finally, I do like the idea of being able to earmark these dividends for my deductible. It is a good feeling that stays within the parameters of my original vision.
What do you think about individual REITs? Is Max taking crazy pills?