(Don’t forget to get your tickets to the PIMD Real Estate Conference coming in September. I hope to meet many of you in person, or you can stay home and enjoy the conference virtually.)
It’s no secret that I believe investment real estate is the single best investment anyone can make. The second best is stock index funds in a retirement account. I have found that many physicians shy away from real estate because they don’t understand it.
They often don’t understand the stock market, or their retirement plans either, but they invest in them anyway and hire an investment advisor to take care of their investments for them. We must realize the exact same thing is available when we invest in real estate. We can invest in real estate and have a property management company take care of our real estate investment for us.
I managed my own investment properties for many years, but now I have a property management company handle everything. If real estate investing is intimidating, find someone who specializes in rental properties and let them take care of it, which is similar to what you do if the stock market intimidates you.
Now that you know you can invest in real estate and either manage the properties yourself or hire a property management company to do it for you, following are the reasons EVERY physician should invest in income producing real estate.
Physicians need an alternate income source
Physicians used to be thought of as having very secure jobs. There will always be sick people who need physicians. But the past two years have shown physicians that our jobs are not nearly as secure as we thought.
Some employers unilaterally decreased physician salaries because they ‘had to’ in order to stay solvent. Wouldn’t it be nice if physicians could unilaterally increase our salaries because we ‘had to’ to stay solvent? Other employers simply dropped physicians from the payroll without notice.
Since physician jobs are not as secure as they use to be, an alternative income source, such as rental real estate income, is a good way to insure against a job loss catastrophe.
Physicians need passive income
“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett.
Physicians’ income is directly tied to showing up for work. If we get injured, or sick and can’t be at work, we don’t get paid. Passive income is money earned from something done in the past that keeps on paying into the future. When I write a book, the royalties continue for years to come, every time a book sells. If I invent a new surgical tool and license it, I get paid every time one sells. If I buy an investment property, it will spin off profits for the rest of my life. Then I can pass it on to my kids, and they will collect the profits.
I have loved cashing the checks I get every month from the real estate I purchased twenty years ago. I learned the value of owning real estate from my grandparents who started purchasing rental property in their 30s. After my grandfather died, while my grandmother was in her 50s, she was able to live very nicely on the passive income from the real estate they had acquired. I too wanted that kind of security and real estate has proven to be a great source of passive income.
Physicians need income that grows with inflation
As commodity prices increase with inflation, so does real estate income. This is because the amount of rent that is charged is one of the determining factors used to establish the inflation rate. Stocks, however, do not always go up with inflation as real estate rental income does.
Year after year, I have watched my real estate income continue to climb, and I don’t have to do anything for that to happen. It is a natural occurrence.
Physicians need retirement money outside of their retirement plans
Qualified retirement plans come with rules and regulations attached to them. Some of those rules make it more difficult to get your money before you are 59 ½ years old. It is not impossible, in fact I am doing it now, but it comes with strings attached.
If something happens that require a physician to retire early, real estate income can be a life saver. As a real estate investor, I can spend the income from my real estate however I want. I can sell a property without penalties. Real estate income can be used as a bridge between retiring and becoming eligible to use retirement plan funds or social security payments.
Physicians need to diversify their investments
We are all familiar with the phrase “Don’t put all your eggs into one basket.” Unfortunately, many physicians have only one basket, their 401(k), and they only have one kind of egg in it, index mutual funds.
It’s not wise to only have one source of income in our retirement funds. Diversification will help us develop a safer financial future. Since real estate investments and stock investments do not follow the same path, they have independent variables that determine their value. Having multiple investment types is very important to maintain a stable portfolio, and real estate should be one of those investments.
Physicians need tax write-offs
Unfortunately, most physicians are now employed and don’t own their business. These physicians collect employment income which is the income source that has the highest tax rate. Many of these physician employees ask how they can cut their taxes, because they are getting killed with their tax bill every April 15th. The bad news is, when your income is reported on a W-2 form you have little recourse to shelter your income from taxes.
Since the government needs housing for the people, they have relaxed the tax rules for those owning rental real estate. This means much of the income earned from rental real estate will not be taxed due to depreciation. Since real estate can be classed as a business, it can be used to write-off other things in your life like part of your house, tools, phones, and anything used for the real estate business.
I hope you now see why I love my real estate investments. I made my first purchase in 2001 and the four small apartment complexes I own today produce more income each year than I spend. That is pretty powerful. In fact, my real estate investments have outgrown my 401(k).
If I have convinced you to look into real estate investing, start by reading this best-selling book, The Doctors Guide to Real Estate Investing for Busy Professionals.
