Physicians Want to Invest In Real Estate
Have you ever thought about what it took to invest in real-estate?
Have you often wondered how to make your money work for you?
Both of those things kind of seem like the logical thing to do as a physician. Riiight?
You have this money sitting in a bank drawing interest, but is there another way you could invest it so it works a little bit harder for you to increase your net worth even more?
Lots of questions to think through right there.
So, having given you a few seconds, where do you stand?
This is a thought that crosses the minds of many high net worth individuals, of which many happen to be physicians.
They find themselves wanting to venture into the world of real-estate in order to expand their net worth in such a way that doesn’t demand too much of their time, while living a busy life predicated by their professional roles.
What You Will Learn
- 1 Physicians Want to Invest In Real Estate
- 2 Invest in Real Estate
- 3 Real Estate Terminology
- 4 Real Estate Syndication
- 5 Crowdfunding
- 6 Single Credit Investor
- 7 Triple Net Lease
- 8 Invest in Real Estate in These Ways
- 8.1 Single-Family Homes and Duplex/Triplex Quads
- 8.2 Apartment Complexes or Multi-Family Units
- 8.3 Mixed Lease Properties
- 8.4 Industrial Real-Estate
- 8.5 Mobile Home Parks
- 8.6 Land Ownership
- 8.7 Cell Phone Towers
- 8.8 Public Real-Estate Investment Trusts
- 8.9 Tax Liens
- 8.10 Notes and Non-Performing Notes
- 8.11 First Trust Deeds and Second Trust Deeds
- 8.12 Fix and Flippers
- 9 Journal Club – Financial Wellness DVM
Invest in Real Estate
Entering into the field of real-estate can be a daunting task for newcomers and, oftentimes, they don’t know where to start or how to begin.
In a recent interview with Dr. Kim, he provided us with a list of 16 rewarding ways in which physicians can invest in real-estate. He also provided explanations of the different real-estate investing options that are available to those interested in this line of work.
He comprised this list due to having an interest himself in investing in certain areas of real-estate, for which he needed to learn more about.
Dr. Kim made a decision in his career to invest in real estate. It’s about the time you consider it too.
Here, we take you on a journey into the world of real-estate investing, where we will not only give you details regarding your different investment options but will also explain some of the lingo and terminology you will come across.
By the time you have reached the end, you should have an idea of whether or not this is something that is really for you; and if so, you will be better versed and more knowledgeable on the subject.
Afterall, empowering you to make the right decision for yourself in regards to which areas of real-estate investment are better suited for you is the reason we’re here.
Real Estate Terminology
Let’s start with some basic terminology and explanations of some of the real-estate lingo.
Direct Ownership and Indirect Ownership
There are two different types of ownership, which are direct ownership and indirect ownership.
Direct ownership is something that most everyone can understand the concept of.
In a nutshell, you buy a rental property; rent it out to someone (a tenant); and you, as the landlord, collect the rent on that property and are directly responsible for the management of that property.
Indirect ownership is when you own the property but pay another entity to manage the property for you. Indirect ownership is the preferred method for most individuals because it alleviates the headache that comes with property management.
For many, especially busy physicians, they don’t want to deal with interrupted sleep that comes in the form of phone calls in the middle of the night due to plumbing issues and such.
Having good management over your rental properties mitigates some of the issues that can occur at any given time and allows you the luxury of not having to be directly involved with the normal day-to-day problems that can arise.
Real Estate Syndication
Many investors in real-estate also utilize the option of real-estate syndication. In simple terms, real-estate syndication is when investors come together in a way that unites their intellectual and financial resources to invest in properties that they couldn’t otherwise handle on their own.
This usually comes into play with your larger property investments.
Sometimes, investors of larger properties also use a newer tool called crowdfunding. Crowdfunding utilizes social media outlets to bring in multiple investors that will invest small amounts of money, which results in large sums of money.
This allows you the opportunity to invest in some larger projects that you would not otherwise be able to afford on your own. If you are someone who is interested in being a credit investor yourself, there are certain criteria that you have to meet.
Single Credit Investor
If you are a single credit investor, you must have personally made over $250,000 over the past two years. If a couple is interested in becoming credit investors, they must have made over $300,000 over the last two years.
An exception to this is if you have one million dollars in net worth, excluding your primary home.
Triple Net Lease
Another term you may hear is “triple net lease.” According to Dr. Kim, “A triple net lease is a lease agreement that designates the lessee, which is the tenant, as being solely responsible for all the costs relating to the asset being leased, in addition to the rent fee applied under the lease.
The structure of this type of lease requires the lessee to pay the net amount for three types of costs, including net real-estate taxes on the leased asset, et building insurance and net common area maintenance.
This type of lease can also be referred to as a net-net-net (NNN).”
Having got some of terminology out of the way, let’s dive into Dr. Kim’s list of the different real-estate options available for you to invest in.
Invest in Real Estate in These Ways
Single-Family Homes and Duplex/Triplex Quads
At the top of the list are single-family homes, as well as duplex and triplex quads.
These are probably two of the simplest options for rental properties.
Many people might not find the necessity in hiring a management company when going this route, unless they have so many properties that they find it hard to keep up with the demands associated with the proper management of those properties.
Apartment Complexes or Multi-Family Units
Next on the list is apartment complexes or multi-family units. When entering into this type of investment, you can either manage it yourself or choose to invest with a group of people through syndication.
Also, for most people, this is probably when hiring a property management company will really be beneficial. It can become overwhelming when trying to deal with all aspects of managing the properties by yourself, whether in the form of maintenance or financially.
Retail is another great real-estate investment opportunity.
This includes things such as strip malls, CVS, and Dollar General.
According to Dr. Kim, a lot of physicians choose this avenue of real-estate investment through triple net lease and take care of the management and expenses on their own, as it’s a low maintenance way of owning real-estate property.
Mixed Lease Properties
Mixed lease properties (also referred to as “residential top”) are properties that usually consist of retail on the bottom floor with the top floor being utilized for residence.
There is industrial real-estate, which would include things such as warehouses.
A lot of businesses are in need of storage space and these are easy, non-management options due to the fact that the businesses usually take care of any issues themselves.
Storage facilities are another great option that require little to no management, have no tenant issues, and they tend to do well in economic downtimes.
Mobile Home Parks
Mobile home parks are another investment avenue that prove to be good in economic downtimes as well.
This is an option that you can do by yourself or can choose to be a part of certain funds that buy mobile home park funds.
Owning land is another great way to invest in real-estate.
A lot of times, developers are looking for land and when that happens, you can hit it big.
According to Dr. Kim, a lot of physicians invest in land near hospitals or rapidly growing areas because ultimately buyers or developers come along and want to buy that land.
Cell Phone Towers
Cell phone towers are another money maker for people that own land and buildings, as cell phone companies will pay you to allow them to put cell phone towers on your land or buildings.
Airbnb’s are a great option for becoming a short-term rental landlord. According to Investopedia, “Airbnb is an online community marketplace that connects people looking to rent their homes with people who are looking for accommodations.”
According to Dr. Kim, there is good money to be made doing this; however, there is a lot of political risk due to ever-changing laws, which make this a risky option.
In addition to the traditional types of real-estate investment as noted above, there are some other ways of investing in real-estate that do not require your direct involvement in renting properties.
Real-estate investment trusts are one of those options to consider.
According to Dr. Kim, these are like mutual funds for rental property or real-estate. These can consist of public or private trusts.
Public Real-Estate Investment Trusts
Public real-estate investment trusts are traded on the stock market, where you just put your money in and you get some type of return; whereas, private real-estate investment trusts are not publicly traded.
You just seek out companies or platforms to put these deals together and you can pick and choose where your money is going.
Another investment platform would be tax liens. When people don’t pay their taxes, the government can place a lien on the property and will then auction off the property.
Oftentimes, investors come in and take ownership of these liens and will then turn them into rental properties.
According to Dr. Kim, it can be tricky to learn how to navigate through the process of finding these at the auctions and know how to maneuver through it.
He indicates it’s always a good idea to partner with an expert to learn the ropes because this is an area of real-estate where people could potentially be taken advantage of if they’re not well-versed on what to do.
Notes and Non-Performing Notes
You can also invest in notes, which are basically mortgages.
There are private equity companies and people that own the mortgages, or notes, which are basically like IOUs.
You buy the mortgages and, over time, you are paid interest on top of the principal.
There are performing notes and non-performing notes. Performing notes are when people are actively paying back their notes and non-performing notes are when people have stopped paying on their notes.
You can usually buy those notes again for cents on the dollar and then take that and actually get them to start paying again.
First Trust Deeds and Second Trust Deeds
First trust deeds and second trust deeds are another type of investment route. An example of this is where you lend money to somebody for them to invest in rental property, essentially securing your money to the property itself. You charge them a percentage on that money that you’ve loaned them, which is typically a higher percentage rate than they would receive through a bank.
Fix and Flippers
The person you loaned the money to owns the property cashflow; however, if they were to walk away, you can come and take the property. Hard money lending is an investment strategy that consists of a shorter term. Oftentimes, developers and “fix and flippers” utilize this opportunity to borrow some quick cash, do what they need to do, get out, make money, and pay you back. These types of loans are usually anywhere from six months to one and one-half years. The last real-estate investment option on the list is “fix and flip.” This is where you buy a property, renovate it, and then turn around and sell the property and make a profit from it.
Hopefully by now, you are a lot more versed in the world of real-estate investment and have taken away some helpful information and tips that will help guide you on your way through your real-estate journey.
Here’s a quick recap of the 16 real-estate investment options on Peter Kim’s list:
- Single-family homes;
- Duplex and triplex quads;
- Apartments or multi-family units;
- Mixed-use properties;
- Storage facilities;
- Mobile home parks;
- Real-estate investment trusts;
- Tax liens;
- Investing in notes;
- First trust deeds and second trust deeds;
- Hard money lending; and,
- Fix and flip.
For anybody interested in learning more on how to invest in real estate and other business ventures, Dr. Peter Kim has a blog at passiveincomemd.com, which addresses financial freedom through passive income via multiple sources for physicians and other high-net worth professionals.
This is a free service that they provide to help these individuals with things such as finding a good loan, how to find a good realtor, buying their own residential homes, and more!
Be sure to check out his blog for more helpful tips and information on real-estate, as well as other income options for high net worth individuals.
Journal Club – Financial Wellness DVM
I checked out FinancialwellnessDVM.com where they posted an article titled “How to use SOAP in your spending plan.”
In it, the author uses the analogy of SOAP to a spending plan. She cleverly calls a budget a spending plan as it sounds a lot less restrictive and then uses an amazing analogy, one that you all are very familiar with, to address her spending. You treat your patients in a methodical manner every single day and her goal (which she does successfully in my opinion) is to help tackle your personal finances in the same way.
I’m going to quote a few pieces of the article to explain how she uses the SOAP analogy.
I finally got tired of feeling like I had little control over our money and decided to act on this by making a spending plan that worked for our family.
“S” is for Subjective –
This is the lack of money management skills results in bouts of anxiety and feelings of inadequacy. A patient’s financial situation is questionable.
She then breaks down some numbers and introduces the reader to Dr. Jones who is married with 2 kids, household income of $100,000 and does an excellent job or breaking down monthly expenses, irregular fixed expenses and flexible spending.
“O” is for Objective –
Dr. Jones spends a total of $80,900 annually on fixed expenses. She is currently tracking her flexible spending.
Annual net income – annual fixed expenses (annual monthly fixed expenses + annual irregular fixed expenses)= Annual flexible spending amount
$100,000-$80,900 ($66,600 + $14,300) = $19,100
I love the next point she makes, and I quote ‘Most spending plans focus on budgeting monthly. The reason that I am looking at this from an annual perspective is because monthly expenses can vary quite a bit. This allowed me to look at the bigger picture and account for all of those irregular fixed expenses from a bird’s eye view. Once I could look at the big picture, I could then focus back down to monthly expenses. An easy way to see if you’re on track to spending within your flexible spending number is to divide the annual number by 12.’
“A” is for Assessment –
In scenario 2, Dr. Jones is not in a good place. She is consistently spending more than what she makes. This does not bode well for the future, unless she wins the lottery or gets a sizable inheritance. No one should ever rely on these methods to take care of their financial problems.
If you are finding that the number you calculated for the flexible spending amount is too little, or even in the negative, don’t lose hope. The purpose of this was so that you can make a plan to address this predicament.
“P” is for Plan –
For Dr. Jones in scenario 2, she decided to do some extra emergency shifts. In addition, they planned to have a nice staycation versus a more expensive trip and eat out twice a week instead of four times a week. Her goal is to pay down her credit card debt as soon as possible.
In my experience, I see the budget or cash flow planning as a huge roadblock for physicians. It’s simply too much for them to want to really dig into, they don’t enjoy it, are afraid of what they will uncover or just simply want to do something else with their free time. I get it, but the point of this is to get a firm control over it and then set it on autopilot.
Within a few months of understanding your cash flow, you should know how much is taken out of your bank account for fixed expenses and what is reasonable to spend on your credit card. As long as you are saving or paying down debt to further your balance sheet, and your cash flow has been in control, you don’t need to budget to the penny.
FinancialWellnessDMV, thanks for showing us how to do it. I truly love the analogy, you rocked it with this one.