As a doctor, investing in real estate can be a smart move to diversify your investment portfolio. Did you know that according to a survey by the American Medical Association, around 36% of physicians own investment properties? This just goes to show that real estate investing is a popular choice among doctors. In recent years, doctors and health care professionals have started creating additional sources of income outside of working in medicine. One of the prominent trends has been investing in income-generating real estate.
But why invest in real estate over alternative ways to bring in more income? There are six common reasons that many doctors and health care workers are choosing real estate investing over traditional investing methods and other side gigs.
High Returns
Real estate has the potential for extraordinary returns, often much faster compared to saving in a 401k, or investing in the stock market alone.
Why is this? Because real estate investments can make the investor returns in several ways. These include cashflow (What is left over after paying all expenses), and appreciation (through buying the property at the right price, increasing value by updating the property and charging more rent and by paying down the debt. and tax savings).
When you add these up, returns often exceed 20-30% year or more year over year.
Tax-Savings
Doctors who invest in real estate save money on their taxes by sheltering passive income and sometimes even sheltering their W-2 income from the IRS.
Writing off depreciation from the asset is a big way to save on taxes especially in multifamily properties and commercial real estate in general. On commercial properties you can accelerate depreciation of parts of the property such as hot water heaters and HVAC through what is called a cost segregation study. This study currently for 2024 allows you to take a bonus depreciation off your investment of up to 60% in the first year!!
There is a bill with the senate as of this writing (Feb 2024) to boost that back up to 100%!
You are also able to write off expenses for the operation of the property as well as property taxes.
Many physicians choose to be passive investors, this allows them great returns and tax savings but also frees up their time to do more of the things they love.
In the investment community I'm part of, it is not unusual to see doctors saving six figures in taxes from investing in real estate each year.
Easy to Learn
Investing in real estate very easy to learn. The apartment building (product) already exists, the tenant (customer) needs a place to live, property managers, contractors, etc (employees) are already trained. Starting a regular business requires you to find, train, and insure your employees on top of developing and marketing a product. The systems to scale in real estate investing are already built and being used by investors everywhere.
The model for owning and renting real estate is already a proven path to financial security and freedom.
I see doctors without a business or real estate background reliably gain the knowledge and skills to invest in a property in only 60 days of starting to learn about real estate investing. That’s a rapid path from learning to implementation compared to most other business options available.
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Not dependent on the Stock Market
Since doctors are typically advised to invest primarily in 401(k)s for retirement, a majority if not all of their excess funds are tied up in the stock market. Keeping all your eggs in one basket can create substantial stress, especially when the stock market is not performing well. The opportunity to diversify by investing in tangible properties is attractive to those who want to have their funds invested in a real property that is not tied directly to the financial markets.
Just as there are stock market cycles, there are real estate ups and downs as well. A smart way to invest in real estate is to diversify your portfolio between different asset classes and markets. This makes it less likely that your whole portfolio is affected at any given time.
Control
As doctors have experienced eroding control in their medical practice, most are looking to gain additional control in their financial lives and financial futures. By investing in properties, they put themselves in the driver’s seat.When doctors invest in real estate, in contrast to relying on a financial advisor (who makes money on making trades on your behalf versus the success of your account), you are in control of where your money goes.
In real estate, you can visit your investment, walk the property and also talk directly to the operator in the deal! When was the last time you could call up Elon Musk and ask him about your shares or request a full tour of the production line?
Generational Wealth
One motivator for doctors to start investing in real estate is the ability to hand down wealth to their children and generations to come. Many people want to build wealth to ensure that future generations have a solid financial foundation and security.
Generational wealth differs from financial freedom and having enough to retire on, which relates to the immediate enjoyment of life. It also differs from having enough to retire on.
Generational wealth refers to a “legacy” that includes things like tangible assets, a business, real estate, investments and other income-producing instruments that you can hand down.
Since the beginning of time, real estate has long been an avenue to build generational wealth, as real estate appreciation combined with passive income makes these investments scalable and repeatable.
I started investing in real estate in 2003 by buying small residential properties. I graduated up to multifamily properties and today I own 800+ units of different asset types across nationwide.
One of my physician friends and her husband started investing with me in real estate four years ago and has since achieved financial freedom.
The next goal for then is to start a trust and set up a generational wealth machine.
Their success and achievement has led to many of their fellow physicians and other high-income earners to follow in their footsteps to do the same.
As a 23 year Emergency Medical Technician and retired medical technician in the military I believe financially free doctors can change the culture of medicine for the better, and I have seen numerous examples of it already in my small community.
If you’re looking to create another source of significant income outside of medicine, why not consider using real estate as your vehicle to get there?
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