ASC and young ophthalmologists

[PhospholipaseA2]

Listened to a great podcast episode on Ophthalmology off the Grid this morning regarding ASC ownership. Was wondering if any experienced ophthalmologists can shed light on contract negotiation strategies for graduating residents or fellows. If the candidate is interested in partnership, ASC, real estate, etc. is it good to communicate that upfront with the understanding it is contingent upon satisfactory performance? For those of you who are owners, how does that style of communication influence your opinion of the candidate?

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[RetinaDude]

Most of us in private practice hope to have a new physician come on board and eventually become partner. As a matter of fact, we try to be very open with the entire process, from the time you are hired until when you become a partner. This involves starting salary and bonus arrangement, showing what other recent new hires have produced and earned, and also how much you can expect to spend if you buy into the real estate, practice, ASC, etc…. If you are the one having to dig too much for this info, I’d be a little concerned. You should be open with the practice about your hopes/plans for the future, and they hopefully do the same with you

 

[forchinet121]

Most of us in private practice hope to have a new physician come on board and eventually become partner. As a matter of fact, we try to be very open with the entire process, from the time you are hired until when you become a partner. This involves starting salary and bonus arrangement, showing what other recent new hires have produced and earned, and also how much you can expect to spend if you buy into the real estate, practice, ASC, etc…. If you are the one having to dig too much for this info, I’d be a little concerned. You should be open with the practice about your hopes/plans for the future, and they hopefully do the same with you

How much does the ASC return on investment? What’s the typical investment and what do you make off it

 

[RetinaDude]

An ASC investment can vary A LOT. I will say this….investing in our ASC is probably one of the best returns ever for me. It’s been a while since I became a partner in the ASC but I believe it cost me $100k to buy in and I usually make $150k from it each year.

 

[forchinet121]

An ASC investment can vary A LOT. I will say this….investing in our ASC is probably one of the best returns ever for me. It’s been a while since I became a partner in the ASC but I believe it cost me $100k to buy in and I usually make $150k from it each year.

Only partners can invest right?

 

[RetinaDude]

Only partners can invest right?

Yep! If you don’t want to be a partner with us, in the practice, we are not going to hand over an investment (ASC) with this kind of great return. We want docs who want to be a part of everything with us. Partners who not only buy in monetarily but also partners who buy in to growing their practice along with our practice

 

[TheLesPaul]

Did you make your ASC investment with pre-tax or post-tax funds?

 

[RetinaDude]

Did you make your ASC investment with pre-tax or post-tax funds?

Post tax. I wrote a check

 

[TheLesPaul]

it is frustrating that our investment is post-tax, and then the distributions get taxed again! it feels like double-dipping...

 

[forchinet121]

it is frustrating that our investment is post-tax, and then the distributions get taxed again! it feels like double-dipping...

Every investment in real estate is post tax and then gets retaxed, the only thing that’s pretax investment is the 401k

 

[mjohnsonets]

Every investment in real estate is post tax and then gets retaxed, the only thing that’s pretax investment is the 401k

This would really only work for individually held real estate (or with some complicated contracts for group-owned RE) but you can hold that RE in an s-corp. With this you can pay yourself 401K, your spouse 401K, a $10K loan (that you don't have to pay back to yourself) each year, pay your kids $~12K/year in w2 wages (they do not have to pay any taxes on this so long as they don't have other income), and pay for your kids(18+yo) 401Ks out of it every year. Depending on how many kids you have you can wipe 6 figures from taxable income and move it into your family's wealth every year. Doesn't really help you now but it is a powerful generational wealth-building tool. Obviously, everyone has to wait until they're 59.5yo to access that 401K money but you can have decades of tax-free growth.

The sweet spot for this is really when your children are young adults and your spouse doesn't work. Once kids start making their own money, it's less impactful but as long as they're in a lower tax bracket than you it still has an upside. In general, I'm assuming most of you if you're partners/owners will reach the highest tax brackets.

*not financial advise

 

[MstaKing10]

This would really only work for individually held real estate (or with some complicated contracts for group-owned RE) but you can hold that RE in an s-corp. With this you can pay yourself 401K, your spouse 401K, a $10K loan (that you don't have to pay back to yourself) each year, pay your kids $~12K/year in w2 wages (they do not have to pay any taxes on this so long as they don't have other income), and pay for your kids(18+yo) 401Ks out of it every year. Depending on how many kids you have you can wipe 6 figures from taxable income and move it into your family's wealth every year. Doesn't really help you now but it is a powerful generational wealth-building tool. Obviously, everyone has to wait until they're 59.5yo to access that 401K money but you can have decades of tax-free growth.

The sweet spot for this is really when your children are young adults and your spouse doesn't work. Once kids start making their own money, it's less impactful but as long as they're in a lower tax bracket than you it still has an upside. In general, I'm assuming most of you if you're partners/owners will reach the highest tax brackets.

*not financial advise

Love this. Plus deductions on all sorts of business expenses etc.

Important to understand that to pay kids W2, at least by IRS criteria, they have to perform work in the business and your pay to them has to be industry standard pay. So can't have the kid mow the lawn once a year and pay them $12k/yr.

In terms of RE, I think a key benefit comes from holding a real estate professional status designation. If so, you can convert real estate deductions to personal ones. This has huge benefits.

 

[forchinet121]

Love this. Plus deductions on all sorts of business expenses etc.

Important to understand that to pay kids W2, at least by IRS criteria, they have to perform work in the business and your pay to them has to be industry standard pay. So can't have the kid mow the lawn once a year and pay them $12k/yr.

In terms of RE, I think a key benefit comes from holding a real estate professional status designation. If so, you can convert real estate deductions to personal ones. This has huge benefits.

Yeah but none of us can do that the requirements for REPS are stringent and no physician unless barely working could meet it

 

[mjohnsonets]

Love this. Plus deductions on all sorts of business expenses etc.

Important to understand that to pay kids W2, at least by IRS criteria, they have to perform work in the business and your pay to them has to be industry standard pay. So can't have the kid mow the lawn once a year and pay them $12k/yr.

In terms of RE, I think a key benefit comes from holding a real estate professional status designation. If so, you can convert real estate deductions to personal ones. This has huge benefits.

This is true on converting to personal deductions.

As for the kids both legally and parentally, make them work for it somehow.

 

[MstaKing10]

Yeah but none of us can do that the requirements for REPS are stringent and no physician unless barely working could meet it

Correct. My wife has it though. Huge perk.

 

[forchinet121]

Correct. My wife has it though. Huge perk.

She got it through managing what? She’s a realtor?

 

[LightBox]

I own (and manage) multiple short-term rentals. You can bonus depreciate them to offset your active income without REPS status. However, this bonus depreciation will be declining over the next few years. e.g. 2022 it was 100% bonus depreciation; 2023 will be 80%; 2024 will be 60%; etc.

Short Term Rental Tax Strategy

 

[forchinet121]

I own (and manage) multiple short-term rentals. You can bonus depreciate them to offset your active income without REPS status. However, this bonus depreciation will be declining over the next few years. e.g. 2022 it was 100% bonus depreciation; 2023 will be 80%; 2024 will be 60%; etc.

Short Term Rental Tax Strategy

You’re a practicing ophthalmologist and you also own and manage short term rentals? Does that make you more money than practicing more ophthalmology?

 

[RetinaDude]

I own (and manage) multiple short-term rentals. You can bonus depreciate them to offset your active income without REPS status. However, this bonus depreciation will be declining over the next few years. e.g. 2022 it was 100% bonus depreciation; 2023 will be 80%; 2024 will be 60%; etc.

Short Term Rental Tax Strategy

Do you just do STRs or do you also have other real estate you own such as multifamily units?

 

[MstaKing10]

She got it through managing what? She’s a realtor?

we own several long and short term rentals. She manages them. Honestly its a lot of work. Would love to hear how Lightbox does it. I couldn't do it by myself.

 

[forchinet121]

we own several long and short term rentals. She manages them. Honestly its a lot of work. Would love to hear how Lightbox does it. I couldn't do it by myself.

Yeah agreed if you don’t have someone else to do it I think it’s a waste of time to do it yourself unless you somehow enjoy it

 

[PLA2]

@RetinaDude Have all of the big retina groups sold to private equity? Are there anymore opportunities in mid sized cities for a young retina doctor to become partner?

 

[eyeeye_captain]

@RetinaDude Have all of the big retina groups sold to private equity? Are there anymore opportunities in mid sized cities for a young retina doctor to become partner?

Not RetinaDude, but I would say while the massive groups haven’t all sold out, it’s a big percentage, getting bigger, without naming names. It’s a nice selling point for my practice when we hire since the applicant won’t have to work for a corporate overlord (caveat, not all of these jobs are bad). Yeah, if you’re willing to look at smaller places, there are plenty of spots where you can crush it. @mjohnsonets has mentioned this before, and I’d echo that “mid sized” cities that at least have the population to support you are potentially great locations.

I say this as a retina guy who lives and works in a metro but also works in the boonies, which is pretty common.

 

[RetinaDude]

@RetinaDude Have all of the big retina groups sold to private equity? Are there anymore opportunities in mid sized cities for a young retina doctor to become partner?

Not all large retina groups have sold to PE but it continues to grow. We are not a huge group but still receive inquiries from PE all the time. So far, we’ve resisted but it’s difficult. Besides the money they offer, we were about being surrounded by PE owned retina, PE owned general ophthalmologists, and PE owned OD practices. That would/could severely impact our referral sources. Also, these large PE groups (from what I’ve heard) seem to have more leverage with insurance companies, which have become more and more of a burden.

We like being able to recruit, and tell new docs we are not part of PE, and we hope we can stay that way

 

[LightBox]

Do you just do STRs or do you also have other real estate you own such as multifamily units?

I own STRs, MF, SF, and also commercial (medical office building). For the STRs, I "self-manage" everything myself which basically involves texting my cleaner(s) and handyman and generating door codes for my guests (as well as communicating with them via AirBnb). I actually find the STRs really fun and by far, more profitable than LTRs and commercial. I'm a SuperHost on AirBnb with all 5-star ratings! Woo hoo!

I'm just trying to have multiple avenues for cashflow, which I find especially important after watching the stock market dump in 2022. I know many older folk (e.g. relatives) who seem to be very cashflow-poor in their retirement. I vowed never to be like them in terms of cashflow.

(Edit: for most of these STRs -- I have never even seen in-person! I just have a trusted assistant who helps to scope out these properties and I get to "tour" them via Facetime).

 

[forchinet121]

I own STRs, MF, SF, and also commercial (medical office building). For the STRs, I "self-manage" everything myself which basically involves texting my cleaner(s) and handyman and generating door codes for my guests (as well as communicating with them via AirBnb). I actually find the STRs really fun and by far, more profitable than LTRs and commercial. I'm a SuperHost on AirBnb with all 5-star ratings! Woo hoo!

I'm just trying to have multiple avenues for cashflow, which I find especially important after watching the stock market dump in 2022. I know many older folk (e.g. relatives) who seem to be very cashflow-poor in their retirement. I vowed never to be like them in terms of cashflow.

(Edit: for most of these STRs -- I have never even seen in-person! I just have a trusted assistant who helps to scope out these properties and I get to "tour" them via Facetime).

How profitable do you mean when you say very profitable regarding the STR? What percent return not including appreciation are you getting on them?

 

[percyeye]

I own STRs, MF, SF, and also commercial (medical office building). For the STRs, I "self-manage" everything myself which basically involves texting my cleaner(s) and handyman and generating door codes for my guests (as well as communicating with them via AirBnb). I actually find the STRs really fun and by far, more profitable than LTRs and commercial. I'm a SuperHost on AirBnb with all 5-star ratings! Woo hoo!

I'm just trying to have multiple avenues for cashflow, which I find especially important after watching the stock market dump in 2022. I know many older folk (e.g. relatives) who seem to be very cashflow-poor in their retirement. I vowed never to be like them in terms of cashflow.

(Edit: for most of these STRs -- I have never even seen in-person! I just have a trusted assistant who helps to scope out these properties and I get to "tour" them via Facetime).

I'm still pretty young in my career and live in the cold Midwest. I've often thought about buying a nice home where I'd want to "winter" one day and use it as a vacation home and also use it as a STR. If I made any money great, but I always think it'd be nice to use the STR income to pay the mortgage and then one day when I retire to have a paid off winter home.

 

[LightBox]

I'm still pretty young in my career and live in the cold Midwest. I've often thought about buying a nice home where I'd want to "winter" one day and use it as a vacation home and also use it as a STR. If I made any money great, but I always think it'd be nice to use the STR income to pay the mortgage and then one day when I retire to have a paid off winter home.

I don't approach any of these STRs with this mindset. For me, it's all about the numbers (occupancy rate, average daily rate, expenses, etc). But of course, having the STRs in nice vacation-type places is a bonus. For example, I obviously have to take a "business trip" to manage these rentals which are in highly desirable locations. Cheapest plane tickets ever!

 

[forchinet121]

I don't approach any of these STRs with this mindset. For me, it's all about the numbers (occupancy rate, average daily rate, expenses, etc). But of course, having the STRs in nice vacation-type places is a bonus. For example, I obviously have to take a "business trip" to manage these rentals which are in highly desirable locations. Cheapest plane tickets ever!

What’s the return you’re getting? Is the ROI on your time worth it compared to clinical practice?

 

[LightBox]

What’s the return you’re getting? Is the ROI on your time worth it compared to clinical practice?

Around 17-20%. It really isn't that much time at all. I just send text messages etc. But I think you have to enjoy it which I definitely do. If you want to come home after seeing patients and not do anything at all, then this is not for you.

Remember: your clinical income is mostly dependent on you being present. I highly recommend obtaining other sources of cashflow besides your clinical income in case factors beyond your control occur (e.g. disability, insurance reimbursement decrease, etc).