We have all heard that real estate is the investment vehicle of the wealthy. However, not many physicians take advantage of this tremendous resource.
The reality is the average medical student graduates with close to $200,000 in debt and does not finish training until his/her late 20s/early 30s with no financial education. The current COVID-19 pandemic has shown us that no job is protected, and earning potential can decline at any point. We should prepare ourselves for times like this by investing in our financial literacy.
Many of us are familiar with retirement plans 401(k)/403(b), emergency funds through savings, the stock market, and disability insurance, but very few of us know anything about real estate. Yes, many physicians own homes, but this is completely different from investment properties.
Real estate can be a great asset because it can provide equity, cash flow, tax benefits, and potential appreciation. It tends to have consistent performance and is less vulnerable to large swings in the market. My hope is to teach you about real estate investing and convince you of the financial strength that can be found in properties.
A systematic approach to buying and holding investment property will help protect you from the downfall of the haphazard landlord. We all know the person who has fallen into owning rental properties without having a plan going in. These same people always have horror stories about the worst tenants and how much money they lost from these properties.
Currently, there is little discussion about how to run an efficient rental property business as a busy physician. The following steps will help to clarify the process.
The first step in successful real estate investing is to treat it like a business. You need to identify your purchase requirements, delegate tasks, carefully file finances, and use tax professionals.
1. Purchase requirements
- Type of property: single-family, multi-family, condo, manufactured homes, storage units, apartment complexes, office buildings/restaurants/shopping centers
- Size of property: number of rooms/square footage
- Condition of property: fixer upper versus turnkey
- Location: urban, suburban, rural
- How much you want to spend on the property.
- How to analyze a property to know that it will cashflow. Shorthand the 1 percent rule.
3. Identify a real estate broker and property manager
- You need professionals that are experienced and have worked with investors. A stellar team leads to better results.
4. Track expenses
- Organization is key. Everything must be accounted for. You can use Excel or programs like Intuit Quickbooks or NetSuite.
5. Hire a tax professional
- There are many tax benefits from owning property, and a licensed professional who works with real estate owners can help you take advantage of these. Make the most of your investments.
All this being said, owning rentals is not the only way to invest in real estate. There is also syndication where you can pool your money with investors and have a more passive role in the property investment compared to owning your own rentals. You can use the strength of smart investors who act as the sponsors to find and analyze deals and invest in a property you probably would not be able to purchase on your own because of prohibitive costs. Syndication is too large of a topic for me to address in this piece, but I would love to open your eyes to all the possibilities that real estate holds and can explore this further when talking about a diversified portfolio.
The real estate market is rapidly changing during this pandemic, and the more you know about investment properties, the more prepared you will be when an opportunity presents itself.
Financial education is vital. We became physicians because we love the work we do, but this does not mean we can forget other aspects of our lives. You are better for your family and patients when you have overall mental, physical, emotional, and financial well being.
Fola Babatunde is a cardiologist.
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