Many healthcare providers like Pharmacists and Physicians are getting involved in real estate as another source of revenue, often by becoming investors, syndicators, or licensed agents. The most obvious way to invest in real estate is to buy a home or commercial property. If you’re not interested or don’t have the time to manage the property, you can hire property managers to do the work for you.
Real Estate investment is not limited to a specific group of people. As pharmacists, investing in real estate creates room for increasing your cash flow and generating more income outside the healthcare sector.
Real Estate Strategies For Pharmacists to note
As pharmacists, it is expected that there is no prior knowledge of real estate investment. These strategies to note are plans or actions that can be taken to help in real estate investment.
- Rental Properties
If you invest in rental properties, you become a landlord so you need to consider if you’ll be comfortable in that role. As the landlord, you’ll be responsible for things like paying the mortgage, property taxes, and insurance, maintaining the property, finding tenants, and dealing with any problems.
Unless you hire a property manager to handle the details, being a landlord is a hands-on investment. Depending on your situation and schedule as a pharmacist, taking care of the property and the tenants can be a 24/7 job and one that’s not always pleasant. If you choose your properties and tenants carefully, however, you can lower the risk of having major problems. The other primary way that landlords make money is through appreciation. If your property appreciates in value, you may be able to sell it at a profit or borrow against the equity to make your next investment.
- Flipping Houses
Real estate flippers are an entirely different breed from buy-and-rent landlords. Flippers buy properties with the intention of holding them for a short period, often no more than three to four months, and quickly selling them for a profit.
The are two primary approaches to flipping a property:
Repair and update: With this approach, you buy a property that you think will increase in value with certain repairs and updates. Ideally, you complete the work as quickly as possible and then sell at a price that exceeds your total investment (including the renovations).
Hold and resell: This type of flipping works differently. Instead of buying a property and fixing it up, you buy in a rapidly rising market, hold for a few months, and then sell at a profit.
A real estate investment trust (REIT) is created when a corporation (or trust) is formed to use investors’ money to purchase, operate, and sell income-producing properties. REITs are bought and sold on major exchanges, just like stocks and exchange-traded funds (ETFs). To qualify as a REIT, the entity must pay out 90% of its taxable profits in the form of dividends to shareholders. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits, thus eating into the returns it could distribute to its shareholders.
Much like regular dividend-paying stocks, REITs are appropriate for investors who want regular income, though they offer the opportunity for appreciation, too.
- Real Estate Investment Groups
Real estate investment groups (REIGs) are like small mutual funds for rental properties. If you want to own a rental property but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you. A company will buy or build a set of buildings, often apartments, then allow investors to buy them through the company, thus joining the group.
A single investor can own one or multiple units of self-contained living space. But the company that operates the investment group manages all the units and takes care of maintenance, advertising, and finding tenants. In exchange for this management, the company takes a percentage of the monthly rent. There are several versions of investment groups. In the standard version, the lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. This means you will receive enough to pay the mortgage even if your unit is empty.
- Real Estate Limited Partnerships
A real estate limited partnership (RELP) is similar to a real estate investment group. It is an entity formed to buy and hold a portfolio of properties, or sometimes just one property. However, RELPs exist for a finite number of years.
An experienced property manager or real estate development firm serves as the general partner. Outside investors are then sought to provide financing for the real estate project, in exchange for a share of ownership as limited partners. The partners may receive periodic distributions from income generated by the RELP’s properties, but the real payoff comes when the properties are sold at a sizable profit and the RELP dissolves down the road.
- Real Estate Mutual Funds
Real estate mutual funds invest primarily in REITs and real estate operating companies. They provide the ability to gain diversified exposure to real estate with a relatively small amount of capital. Depending on their strategy and diversification goals, they provide investors with much broader asset selection than can be achieved through buying individual REITs. Like REITs, these funds are pretty liquid.
Another significant advantage to investors is the analytical and research information provided by the fund. This can include details on acquired assets and management’s perspective on the viability and performance of specific real estate investments and as an asset class.
What is the typical process of apartment syndication from start to finish?
As a pharmacist, it is important to note that there are steps for taking a syndication deal through a full cycle. Below is a list of each of the 11 steps, along with a brief description.
- Select a target market
The first step is for the GP to identify a market in which to invest. This involves analyzing multiple markets across the US via online research in order to narrow it down to a handful of potential markets of real estate syndication deals. Then, the GP performs boots-on-the-ground and more detailed analysis in order to confirm the market’s investment potential.
- Build a team
Once the GP has identified and selected a target market, the next step is to create their local team. As I mentioned above, the main team members are a management company, commercial real estate brokers, real estate deals, real estate investing, the real estate market, and limited partners.
A smart GP will obtain verbal commitments from potential passive investors BEFORE they begin their search for deals. It is important to have an idea of how much voting rights money they are capable of raising because that will be a determining factor in the size of the deal they can acquire.
- Find a Deal
With the team in place and verbal commitments from potential passive investors obtained, the GP is now ready to begin searching for a deal. They will receive on-market deals from various commercial real estate brokers and real estate investing and/or off-market deals as a result of their marketing efforts.
Once the GP receives a deal, they will put it through their financial evaluation process. Typically, this starts by initially screening the deal based on their investment criteria (e.g., number of units, construction age, value-add potential, market, property class, etc.). Then, using the historical financials, assumptions for how they will operate the property, and rental comps, rental income they underwrite the deal using their financial model.
Typically, the GP will set certain return thresholds to determine which deals to submit offers on. The two main return thresholds used are cash-on-cash return and internal rate of return. After completing the underwriting process, the GP will submit an offer on the apartment community and apartment complexes if the deal meets or exceeds their return goals. If the offer is ultimately accepted, the GP puts the deal under contract.
- Due Diligence and business plan
Once the deal is under contract, the GP usually has 60 to 90 days until close. During that time, they perform detailed due diligence on the apartment community and apartment complexes in order to confirm or update their underwriting assumptions and finalize their plan for business.
- Secure investor commitments
Concurrent with the due diligence, the GP will officially secure commitments from their passive investors’ jobs act limited liability company. This typically involves a conference call or webinar where the investment opportunity is presented to the LPs so that they can decide whether to invest.
- Securing financing
The majority of the purchase price is funded by a lender. So, while the GP is securing commitments from their investors, they are also in jobs act communication with a lender or mortgage broker to secure the debt financing.
- Close the deal
Assuming the apartment community passed the due diligence phase and the funding (both passive investor equity and debt) is secured, the GP closes on the deal and takes over the operations.
- Execute the business plan
Once the GP closes on the apartment community, they perform their duties as the asset manager and implement jobs act their business plan.
Most syndications have a projected hold period and exit strategy. Sometimes the hold period is shorter and sometimes it is longer, depending on the market conditions and success of the business plan. But, at some point, the GP will sell the property, return the LP’s remaining equity, and distribute the profits.
Alternative investments can be a great option for pharmacists looking to expand beyond traditional financial instruments. While real estate investment comes with potentially high returns, they also involve a significant amount of risk. So be sure to carry out your research well.
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.
How much money do I need to invest in real estate?
The amount of money needed to invest in real estate varies depending on the type of property and the market. As a pharmacist, you may be able to qualify for financing options that require a lower down payment, but it’s important to assess your financial situation and set realistic investment goals.
Is it better to rent or flip properties?
Renting and flipping properties both have their pros and cons, and the best option depends on your investment goals and market conditions. Renting properties can provide steady rental income, while flipping properties can generate quick profits.
How can I avoid making common real estate investment mistakes?
To avoid making common real estate investment mistakes, it’s important to conduct thorough market analysis, property inspections, and financial assessments. Working with experienced real estate agents and property managers can also help you avoid common mistakes.