Why Should Doctors Invest Passively in Multi-Family Real Estate?

Doctors are a unique category profession because they begin their career later in life after many years of education. More than 75% of recent medical school graduates are $100K or more in debt according to the Association of American Medical Colleges. When doctors start out, perhaps they are in their early thirties with a spouse and kids. Even though we have the perception of doctors making a lot of money, the truth is, many doctors are behind on retirement savings and need to work many years to get into high cash flow. 

According to the 2018 Report on U.S. Physicians Financial Preparedness prepared by AMA Insurance, a subsidiary of American Medical Association, 34% of respondents stated they are behind where they would like to be on retirement.  According to the study, the following are the reasons for not being confident with retirement: volatile market conditions depleting savings, not saving enough, started savings too late, major health issues, financially supporting family members, and spending too much early in retirement.

Doctors also have a very physically and emotionally draining job. As with anyone, job security is at risk when health issues come up.  Doctors rely on physical wellness to perform their jobs well. Not only that, but they rely on their hands and eyes to work well in order to perform their job. Can you imagine a dentist or surgeon who suddenly cannot see well or loses function in their hands? They would no longer be able to practice.

Why is this significant?

A doctor may think about investing once they have been practicing for many years and feel that they want to make good investments for the future. However, the smartest thing a doctor can do is to think about passively investing earlier in their career. The bottom line is all those unexpected scenarios would be devastating unless they were passively receiving an income of $10,000 or $20,000 each month.

What are some of the benefits?

• As mentioned above, a passive income in case of an emergency that renders them not able to work.
• Passive income through multi-family real estate helps reduce the risk of volatile market conditions.
• Investing in multi-family [syndication] deals provides tax benefits, depreciation and expense write-offs. The income received can be tax free based on depreciation of the asset.  This paper loss (depreciation) flows through your personal tax returns as a deduction from passive income.
• Other investments can leave investors concerned and unsure day to day how their investment is doing. With passive investments, the investors capital is preserved while they receive monthly or quarterly income.
• Retirement funds can be invested through a self directed IRA or Solo 401k.  This is an easy process that gives doctors control over their retirement investments.
• Very little work is done by the investor. A busy doctor can benefit from his sponsor (the person putting the deal together) doing all the heavy lifting. A passive investor invests and reaps the benefits.
• As a passive investor (limited partner) there is no liability to you.  Lenders cannot come after the investors assets due to majority of multi-family loans being non-recourse.
• Multi-family investments can provide excellent returns and more stability compared to the stock market.  A sample offering may provide 7% preferred annual returns, with a 12-15% IRR after 5 year holding period.  With this you are likely to see an equity multiple of 1.70x or higher on your initial investment over 5 years!
• Multi-family investments have shown again, even during a pandemic, that the asset class is stable and resilient.  At the end of the day, we may not need an office but we will always have basic needs of shelter.

When we get started in life, most of us don’t look 30-40 years down the line, we focus on the now. Passively investing in multi-family real estate is a realistic and proven way to take an important step to ensure your future. Any business has ups and downs, but certainly that of a doctor is very risky and uncertain. So, while doctors are busy improving people’s lives and keeping them healthy and safe, a passive investment can do the same for the doctor.

Additional Resources:

Crafting a Profitable Strategy While Mitigating Risk in Real Estate Investing with Joel Friedland

Stop Trading Your Time For Money And Start Creating Passive Income

Susan Geist – Tax Savvy Savings: The Tax Bucket Approach to Put Money Back in Your Pockets