Last month, I had the opportunity to do some research on real estate syndication and I was looking for ways to diversify my portfolio. Before this time, I was all about stocks and bonds. I even syndicated an awesome review about diversyfund – a non traded real estate investment trust company which I ended up investing heavily into.
My research led me to Dr. Kristen Ray, the co-founder of Vital Investment Partners.
Co-Founding Partner of Vital Investment Partners, Kristen Ray, is primarily responsible for equity procurement through a deep and proprietary network of high net worth individuals. She is also responsible for maintaining investor communication and corporate marketing. Some of Ms. Ray’s additional responsibilities include forming and maintaining business partnerships, asset acquisitions, acquisition due diligence, maintaining broker relationships and fostering partnerships with other multifamily syndicators.
She has been educating me on real estate in general and more specifically about syndications. Here is the first post of the series. I believe you will benefit from learning about passive real estate investments and decide if it is for you.
Here is a recent webinar from the team to introduce you to the fundamental concept of multifamily real estate investing
Physicians are some of the hardest-working professionals out there.Between patients, pharma reps, and dealing with the business end of the practice, there’s little time left to devote to personal concerns (also known as family and fun).
If you’re a physician, finding the time (and mental energy) to dabble in a side business is probably not on your mind. But there are a few reasons why physicians should seriously consider the idea of building passive income through real estate.
One of the main reasons you should get involved in real estate is that it provides you with an opportunity to build a passive income stream outside of your practice—and here are 5 awesome things that income stream can do.
Table of Contents
#1: Build wealth: Pay down debt and create cash flow with real estate
Most professionals in the healthcare field are saddled by enormous amounts of debt—even just a few years ago, the average medical school debt was already around $200,000. Allocating a portion of your income to pay off that debt is going to severely limit your lifestyle and the funds you need for running your practice—even if you’re making six figures.
Alleviating that burden of debt with real estate income can improve your financial life, allowing you to derive more enjoyment from the money you work hard to earn.
Cash flow is important for any business, and your practice is no different. Whether you’re looking to spruce up the waiting room, rent out a better office location, or purchase some cutting edge equipment, cash flow from rental real estate will help you take your business and practice to the next level.
If you’re concerned about taking on the additional debt of a mortgage, don’t be. Whether you’re renting out a single family home or multifamily apartments, the rent from your tenant(s) can cover the monthly cost of the mortgage and other related expenses.
#2: Reduce your tax burden with real estate.
I am not a CPA so please consult your CPA for tax-related advice. However, I have been advised by my CPA that real estate can also become a vehicle to reduce your tax burden. If you invest in real estate, the depreciation of your property’s value can reduce your taxable income.
Real estate business expenses such as repairs, maintenance, upkeep, property management costs, and even the cost of travel associated with checking up on your properties can all help lower your taxable income.
Since physicians are often in some of the highest tax brackets, they can get slammed with punitive taxes in addition to all the other financial burdens they carry (namely, medical school debt). Owning real estate can become a vehicle for reducing your taxable income in addition to creating another income stream.
There are also other tricks of the trade that a qualified tax advisor can walk you through. For example, how to utilize the power of bonus depreciation in larger properties to reduce your tax burden.
#3: Build generational wealth with real estate.
If you’re like most professionals, you have some sort of retirement plan with a 401K or 403B set aside. Fortunately, people are living a lot longer these days which means their life post-retirement is much longer. Thus, often requiring more capital than originally thought to lead a comfortable life post-retirement.
Unfortunately, that means that even a six-figure retirement account may not be enough to cover your living expenses through two (possibly three) decades of retirement—unless you want to work until you drop dead.
At this rate, you may not have enough wealth to pass down to the next generation. By contrast, if you own a hard asset like an apartment building, mobile home park, self-storage facility or smaller rental properties, you can pass them on to your children (and in many instances, transferring property within your family is subject to some serious protection from normal taxes and fees).
#4: Enjoy life more with an additional passive income stream.
As a physician, you know the value of hard work—probably even before the days of your residency. But wouldn’t it be nice to earn additional income while you sleep?
Hopefully, you do get to sleep these days.
Real estate—in particular, multifamily apartment complexes—are a great source of passive income. If you want to save more, decrease your working hours, retire earlier, take luxurious vacations more often, drive a nicer car, or anything else that requires additional income, building wealth through real estate can help you achieve that.
Inflation has been increasing over the last few years, and wealth-building assets like real estate can provide a hedge against the effects of the dollar’s decline.
As you can see from the following graph, while the decline of the dollar’s value drove up the consumer price index 650% over the last several decades, home prices rose in value by a whopping 1,203% over the same time span.
//www.urbancoreadvisors.com/warehouse/fm/images/content/real-estate-inflation.jpg
In other words, while your income carries less spending power over the years, your real estate (which can be converted to liquidity) can give you a hedge against inflation.
Thus, if you’re holding rental properties, inflation will increase the rent (which is good news for you). Even better is the fact that your mortgage on the property will not be impacted by inflation, in large part due to its fixed nature.
That means while your monthly mortgage payment remains the same, your cash flow will increase while the loan on the property continues to be paid down by your tenants.
In fact, this particular point makes inflation very appealing to property owners.
Passive income doesn’t have to just be about enjoying caviar and champagne on your private jet to Seychelles—it can also help take care of your family. If you don’t care about any of those luxuries, but the idea of sending your kids to college, helping them buy their first home, or giving to charitable organizations you care about sounds appealing, then the passive income stream provided by real estate can do that as well.
#5: Multifamily Real estate often outperforms the stock market
Most 9-5 professionals view the stock market as the gold standard when it comes to retirement or even passive income. After all, pretty much every single 401K or 401B is made up of stocks, bonds, or mutual funds. Of course, there are also alternative investments like contributing to a startup.
Multifamily real estate has outperformed the stock market for decades when adjusted for risk and inflation.
There’s been a lot of ink spilled over the topic of multifamily real estate vs. stocks, but there are several good reasons to pick multifamily real estate over equities.
While a portfolio of stocks can take several years (or decades) to yield serious growth, multifamily real estate starts paying off right way; renters need to pay rent every month—stocks only pay out quarterly (and not all stocks provide dividends).
You also have more control over your investment with multifamily real estate. Unless you purchase a controlling number of shares in a company, you have little say over how your investment will develop. By contrast, multifamily housing affords you the opportunity to make improvements on your assets.
Finally, while inflation can negatively impact your stock portfolio, as discussed above, it can only help your multifamily assets. In fact, over the last few decades, multifamily housing has carried the highest level of returns and the lowest level of risk, in comparison to other equities.
While you’re doubtlessly aware of the fact that equities like stock can fluctuate wildly from year to year (even hour to hour), real estate is comparatively stable. There will be occasional excitement and shifts in the market, but by and large, land is pretty…grounded.
Speaking of stocks, I get several questions regarding REITs (Real Estate Investment Trusts), which is somewhat similar to purchasing a share of stock in an income-producing commercial real estate company. Unfortunately, REITs offer very little transparency or control for investors.
A better alternative, to a REIT is a private placement real estate syndication. These syndications allow several investors to pool their capital and invest in larger projects while mitigating risks.
This form of real estate investing is extremely passive, you can elect to become a limited partner in the syndicate, which means you will get a truly passive return on your investment that can provide cash flow, tax breaks, and build your wealth…without all the hassle of board meetings, interaction with the tenants, or property management—you can just sit back and collect checks from the apartment complex, mobile home park, self storage facility, medical office building (just to name a few options).
Conclusion: You Don’t Have to Give up What You Love Doing
Becoming a real estate investor does not mean you have to give up your work as a physician. You can become a passive investor while continuing to do what you trained so hard to do.
And if you don’t like what you’re currently doing, developing a steady cash flow stream via real estate investing might be your way out of the field.
But of course, assuming that you do find the healthcare industry fulfilling, exploring real estate investing and its ability to create passive income can seriously improve the quality of your life, for all the reasons mentioned above.
Of course, as you know from working your way up in the medical profession, there’s a lot to learn. Fortunately, you don’t have to go through any kind of real estate residency to gain valuable experience—I’ve already done that for you.
If you have a competent guide to show you the ropes, you’ll make good investments and start building wealth.
Sign up for a strategy call on our website at www.vitalinvestmentpartners.com. Let’s connect and discuss your personal and financial goals, and how investing in real estate can assist you with reaching those goals.
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Adebayo
Website
I am a pulmonary and critical care doctor by day and personal finance blogger/debt slaying ninja by night.
After paying off close to $300,000 in student loan debt in less than 6 months into my real job, I started on a mission to help others achieve the same. There is no magic to this than to strap up and get it done. Some of the ways we achieved this include side hustle, budgeting, great negotiation skills, and geographical arbitrage.
When I was growing up, common knowledge in Nigeria is that there is one thing you cannot trust anyone else with, and you guessed it – your money.
Being frugal came easily to me based on my background. However, the concept of building wealth did not solidify in my mind until when I finished medical school. I wish I knew what I know now when I was 14. Still, I don’t know enough and I am constantly learning to improve my knowledge.
My goal is to reduce financial illiteracy among young professionals. I am catering to the beginners – babies and toddlers in financial literacy.
