Physician aims to be philanthropist
By most measures, Scott Reiter is in an enviable financial position.
The freelance emergency-room doctor is worth nearly $7 million.
But his investments are more eccentric than moneymaking. And he’s had such bad luck following the suggestions of people he trusted to be financial advisors that now he’s leery of even the most basic counsel. On top of that, he’s spending at such a clip that he’ll run through it all before he’s 85.
“He’s totally out of net worth by then,” said Brent Kessel, president of Abacus Wealth Partners in Pacific Palisades. “Everything has to be sold to buy groceries.”
It’s not that Reiter is running around buying Armani suits.
Identifying more with the blue-collar set than the country-club crowd, the 56-year-old drives a dented Toyota Camry and lives in an apartment. But he gives money away like a soccer mom handing out party favors, distributing $300,000 recently to charities and friends in need. He spent $400,000 for 20 acres in Hemet that he hopes to turn into an organic ranch, a money sink that drains $10,000 a month from his resources.
“I know I should be keeping my eye on the prize. But I don’t,” Reiter said. “I’ve lost my focus.”
The prize for Reiter would be to manage his money well enough that he can fully fund a charity he’s started and scale back his medical practice.
He won’t be able to do that, though, unless he slows his spending and improves his investment strategy.
Financial advisor Kessel said the physician had two-thirds of his $6.7-million net worth in unimproved land and other investments that were not generating enough income -- even by the standards of the current economy.
“The biggest reason that $7 million isn’t a lot in this case is $4.5 million of it isn’t invested productively,” Kessel said.
Reiter owns roughly that amount in real estate -- the apartment building where he lives, two commercial properties and 10 undeveloped parcels spread throughout California, Florida and the Philippines. He holds about $1 million in stock and other investments and an additional $1.5 million in a certificate of deposit and a savings account. Last year he earned $50,000 working in emergency rooms in Southern California hospitals and running Pier Laser Med Spa, a dermatological medical clinic he owns. He carries $350,000 in mortgage debt.
But a lot of that sounds better than it is. He doesn’t rent out the other units in his fourplex -- they’re empty except when friends come to visit or need a place to crash. The Med Spa hasn’t turned a profit yet, and much of the land he owns is undeveloped.
Over the years, Reiter has adopted a dichotomous investment strategy, taking big risks on real estate and other investments and too little risk with his cash, Kessel said.
“He needs a middle-of-the-road plan across the board.”
Reiter blames past advisors for steering him wrong. One, he said, advised him to invest $300,000 in a fund, saying it offered a guaranteed annual return of 5%. Reiter later learned that the return was payable only upon his death. Meanwhile, the fund has plummeted to $150,000. At the suggestion of another, he invested in a gold fund that carries a fee of nearly 2%.
Fortunately for Reiter, one of his risker bets paid off. Seven years ago at a Federal Communications Commission auction, he bought electromagnetic spectrum -- airwaves used for voice, video and data transmission. The FCC has been selling spectrum used for various communications as it shifts the country to high-definition broadcasts. Reiter eventually parlayed a $150,000 investment in spectrum into a gain of more than $2 million.
Because of the windfall, Reiter hasn’t had to be disciplined with his spending, or his investments for that matter, but he’ll need to get a handle on his expenses, Kessel said.
As for his investments, Kessel wants Reiter to capitalize his real estate holdings, particularly the undeveloped land, and plow the earnings into income-generating investments.
But, realizing that Reiter is attached to his land and isn’t likely to sell it, Kessel advises that he work more specifically with two commercial buildings he owns in Santa Monica. The buildings have appreciated in value over the years, but they yield just 3%. That’s partly because Reiter’s been reluctant to raise the rents and lose trustworthy tenants.
Kessel recommends that Reiter get the rents to market rates or sell the buildings and invest the proceeds in properties yielding at least 7% annually.
He also wants Reiter to rebalance his investments, which are heavily weighted toward cash as well as natural resources stocks. Kessel recommends reallocating into a mix of low-cost funds that are balanced at 60% bonds and 40% stocks. Kessel suggests weighting Reiter’s assets more heavily toward bonds because the physician is averse to stock market risk.
If he follows through, Kessel said, Reiter could keep spending at his current levels, contribute about $20,000 a year to his charity and have enough money to last him until he’s 100.
Reiter, though, remains wary of financial advice -- and admits he may not follow Kessel’s suggestions.
“It just seems like the things I did on my own I still have and those that I entrusted to others I lost money on,” he said.
Reiter plans to continue to keep a lot of his money in cash in case he spies another good real estate deal and to leave his stocks alone for now.
The doctor has had a wake-up call on his spending and said he planned to cut back on his expenses.
“I realized my money isn’t limitless,” he said.
He also realized that most of the things that make him happy don’t cost him much, such as riding his bike along the beach and helping people. Reiter has always volunteered his medical skills, working in a free clinic in Venice and removing garish tattoos from gang members to help them enter the workforce.
Reiter says he wants to spend more time on his charity, A Cry for Help, which has helped about 35 students in the Philippines. He plans to hire a friend to develop marketing materials and create a website. And he plans to return to the Philippines next year to watch seven of the students he’s supported graduate from high school.
Do you need a money makeover? Each month, the Sunday Business section gives readers a chance to have their financial situations sized up by professional advisors at no charge. To be considered, send an e-mail to makeover @latimes.com. Include a brief description of your financial goals and a daytime phone number. Information you send us will be shared with others.
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This month’s makeover
* Who: Scott Reiter, 56
* Income: $50,000
* Goals: Work part-time as an emergency-room physician and contribute more of his time and resources to his charity, A Cry
for Help. Reevaluate his investments and determine how much money he can donate to charity and how much he will need for retirement.
* Assets: $4.5 million in real estate; $1.5 million in cash; $700,000 in stocks and retirement accounts and $55,000 worth of personal property.
* Debt: $350,000 mortgage
* Recommendations: Sell his investments in raw land and reinvest the money in revenue-generating assets. Raise rents or sell commercial properties in Santa Monica and buy other property that generates at least a 7% annual return. Reallocate investments, including money currently in cash, into a mix of 60% bonds and 40% stock. Cut back on spending and track expenses.
* About the planner: Brent Kessel is co-founder and president of Abacus Wealth Partners in Pacific Palisades. He is the author of a personal finance book, “It’s Not About the Money.”
