Physicians need different investments to create a healthy financial portfolio and maintain financial stability. Commercial real estate and apartment properties are excellent investments for physicians; it’s less volatile than stocks and offers high exit growth potential and attractive annual returns.
Before passive investing in commercial real estate as a physician, you should know that multifamily real estate is very stable and exhibit low volatility, especially when you compare it to stocks. Multifamily commercial real estate offers high growth potential and attractive returns.
Commercial real estate consists of properties like retail, office, and industrial. Still, the most robust performing commercial real estate sector is multifamily, which is essentially just a rental property with five or more units. Some physicians invest by purchasing properties themselves or invest passively as a Limited Partner (LP) by investing in multifamily real estate syndications.
Benefits of Commercial Real Estate Investment for Physicians
A few key benefits make commercial real estate an excellent investment for physicians.
High growth potential: The market for commercial real estate is growing rapidly, so your investment has the potential to grow at a much faster rate than stocks or bonds.
It is less volatile than other types of investments: The multifamily asset class has proven throughout many real estate cycles, including the COVID-19 pandemic, that it is recession resilient.
It has attractive returns: Physicians expect an annual return of 8% + on their commercial real estate investment. That rate is higher than the average stock market return, and many physicians find this attractive.
You can’t lose on commercial real estate as you can with stocks: Many physicians invest in commercial real estate properties. If the market happens to dip, they’re not going to lose money from their investment because the holding period of the deal will be much more extended than that dip in value.
Tax benefits: Commercial real estate offers a few tax benefits you don’t get with other investments. The depreciation deduction, through straight-line depreciation or a cost segregation study to accelerate depreciation “paper losses,” can be used to offset any income you make from your investment property.
It is a tangible asset: Unlike stocks or bonds, real estate is a tangible asset. You can see it and feel it, which can make you better connected to the financial decisions you’re making.
HOW PHYSICIANS BUILD WEALTH WITH APARTMENT INVESTING
- Buy an apartment building yourself as a real estate investor.
You can research and begin investing by purchasing an apartment building as a solo investor. While this may be the most intimidating option, the good news is that you can keep all the profit to yourself.
The most important thing to remember when investing on your own is that all of the responsibility will fall on you. You’ll be on the hook for maintenance work, tenant conflicts, collecting payments, and other tasks. It’s helpful to have several reputable real estate contacts to hire as help for legal, financial, or maintenance concerns.
- Team up with a partner to invest in apartment buildings.
young couple playfully fighting as they discuss investing in apartment buildings
The next option is to find a partner for the investment, so you’re not managing risk alone or stuck with all the work. Finding the right partner can help you speed up the process and split the responsibilities that way, you don’t become as overwhelmed.
What are the benefits of investing in an apartment building with a partner?
- You can team up with someone with experience or skills you don’t possess.
- You can raise more capital and split the expenses.
- You can divide the work.
- Invest in a real estate syndication agreement.
A syndication agreement is where you pool your finances with a small group of investors to purchase real estate. This type of investment may be an available option for those who don’t have enough money to make such a hefty investment on their own.
Real estate syndication is much simpler nowadays and an attractive form of passive income. A syndication agreement works when the person in charge, called the syndicator, opens their property investment opportunity to multiple investors. The syndicator does all the decision-making while the investors, also known as limited partners, receive passive income from the property.
- Invest in an apartment building through real estate crowdfunding.
Real estate crowdfunding projects are one of the newest ways to invest in apartment buildings without doing any work that traditionally goes into buying real estate. Crowdfunding simply asks the general public to contribute capital to a real estate project.
What makes crowdfunding different from real estate syndication? Syndication is a funding relationship between a smaller group of accredited investors, while crowdfunding is a method for finding investors of all experiences. One drawback with crowdfunding is that these investments are typically illiquid, meaning you likely won’t get your money back for a few years.
What are the benefits of investing in an apartment building through real estate crowdfunding?
It requires low start-up capital compared to trying to purchase an entire building on your own and it offers access to new and exclusive opportunities you won’t find anywhere else. The risks are split between multiple people and you don’t have to worry about a mortgage.
- Invest in an apartment building through a REIT.
While investing in an apartment building can be a healthy option for diversifying your portfolio and a decent hedge against inflation, it comes with extensive work that you may not have time for.
If you’re not sure that you’re ready for the responsibility of investing in an apartment building as a property owner, you can always invest in a REIT (Real Estate Investment Trust). REITs are companies that own, operate, or provide financing for income-generating real estate projects.
REITs are the most passive way to invest in apartment buildings. REITs have made real estate investing more straightforward and accessible to investors with varying budgets. They’re also passive investments that don’t require any effort on your behalf, meaning you won’t have to worry about screening tenants or collecting rent.
How can you invest in an apartment building through a REIT?
Many REITs are publicly traded on the stock market, meaning you can invest when you’re ready from the comfort of your own home. You can use online brokers to invest in these REITs at any time.
- Invest in a real estate fund.
A real estate fund is a mutual fund that invests in REITs and real estate companies. To invest specifically in apartment buildings, you must seek real estate mutual funds that invest in REITs or companies specializing in multi-family units.
There are three types of real estate funds:
Real estate ETFs (Exchange-Traded Funds): These funds will own shares in real estate companies and other REITs, and they’re publicly traded on the stock market.
Real estate mutual funds: These professionally managed investment vehicles invest in a diverse portfolio of real estate opportunities.
Private real estate funds: These funds are often exclusive to those with a decent amount of capital to allocate.
Real estate investment is a particularly attractive portfolio builder for medical professionals because investors can dedicate as much time as they desire, and explore investments alone or with partners. It’s also a passive income stream that will be there whether you work or not.
As informed investors we should understand the risks associated with real estate investing and that there is no guarantee. Please do your due diligence.
Contact Estateserve today and realize your cash flow goals.
Can physicians invest in apartments with limited time and resources?
Yes, physicians can invest in apartments by partnering with real estate professionals and leveraging technology and automation to manage the property efficiently.
What are some financing options for apartment investing?
Physicians can finance apartment investments through traditional bank loans, private equity, crowdfunding, or seller financing.
How can physicians mitigate the risks of apartment investing?
Physicians can mitigate the risks of apartment investing by conducting thorough due diligence, diversifying their portfolio, partnering with experienced professionals, and investing for the long term.