Physicians looking to add real estate investments to their portfolio may wonder how they can take the time to manage properties and do their jobs. But real estate experts offer several ways to earn passive or semi-passive income from real estate that doesn’t require ownership.
Physicians looking to add real estate investments to their portfolio may wonder how they can take the time to manage properties and do their jobs. But real estate experts offer several ways to earn passive or semi-passive income from real estate that doesn’t require ownership in the traditional sense. For doctors, who tend to earn a lot of money, real estate investments can also benefit from tax breaks.
Determine your goals
To determine the right real estate investment strategy, it helps to first define your financial goals, according to Harry Nima Zegarra, MD, a pulmonary and critical care physician at Baylor University Medical Center in Dallas, Texas, and owner of Nima Equity. “A return on investment is important, but how much time do you want to spend on certain types of activities?” He asked.
Real estate has multiple benefits, he said, including “cash flow, appreciation, leverage, equity that keeps building up when you pay off your mortgage, and fiscal advantages”.
Nima Zegarra, who has an active real estate portfolio, first became interested in the wealth-building possibilities of real estate after selling a house he and his wife bought in 2011 that had appreciated significantly over the years of owning it. They didn’t want to put the time and effort into property management and quickly discovered property syndication.
real estate syndication
Real estate syndication is where a group of investors come together to buy a property at a price none of them could individually afford. After the property appreciates over time, they sell it and split the profits, according to Eli Goodman, a licensed realtor with Illinois Real Estate Buyers in Chicago, Illinois.
Under this method, an investment of $2 million to $3 million is raised by the group of investors, which can include anyone who decides to invest together, Goodman said. Once the capital is raised, the real estate syndicator oversees all the hard work. “The developer of that would find the assets, raise the capital, buy the property, increase the value, stabilize it and manage it,” Goodman said.
Nima Zegarra and her investment group prefer to buy apartment complexes. So not only do investors receive passive rental cash flow over the year, which he estimates at a return of 7% to 10% each year, but they also gain appreciation as the value of the building increases. . In four to six years, the syndicate sells the building and shares the capital.
Although the returns on syndication can be very good, Nima Zegarra warns that this is not a liquid investment. “If I change my mind in two months on stocks, I can sell my stocks and get my money back. In syndication, it’s usually a four to six year investment,” he explained.
Additionally, most of these types of investments require a large initial layout, anywhere from $50,000 to considerably more. And each investor must pay the syndicator an entry fee and an exit fee, usually as a percentage of the return.
The advantage is that it is a passive form of income generation once you have done the legwork to find the right syndication group, which, according to Nima Zegarra, takes time and effort. research. And the returns can be quite good, up to 10% to 15% return per year, according to investor and rental broker Donnie McGriff, owner of Echo Properties in Dothan, Alabama.
Nima Zegarra said his group aims for gains of 50% to 60% on the investment amount, selling at year 5.
Buy low, retrofit and flip
Another real estate method that doesn’t require owning is essentially “flipping” homes by buying low, then investing in renovations and reselling them at a higher purchase price, McGriff said. “There are plenty of opportunities in California and across the country for doctors to buy low and do renovations. California, in particular, has submarkets where it is possible to access assets that have not been serviced or maintained. »
Although this method is still passive over time, it requires a lot more work upfront and a doctor should ask some important questions, McGriff said. “Do they want to keep it for a while, or do they want to renovate and then sell the assets and enjoy increased equity and repair value?”
It’s also possible to pay a broker to perform the flipping process, according to Brian LeBow, licensed real estate broker and owner of Bell Properties in Arcadia, Calif. “They trust me with their money and we do a stock split,” Bell said. It engages all parties necessary to renovate and reassess the property before selling it.
Another property flipping angle is to use the appreciation value of a new home and its higher appraised value to take out a loan to buy another property, McGriff said. “Then you can rinse and repeat. You don’t have to keep your money tied up in a property forever,” he said.
Work with a
Although owning a home isn’t appealing, cash flow from rental properties can be a great form of passive income, LeBow said. But doctors don’t have to manage the properties themselves; they can outsource this work to a property management company. In LeBow’s experience, “Many customers will go six or seven months without any communication [with their property managers]. Many doctors will give property managers financial clearance to take care of any repairs or issues that arise. “It can be very convenient for them,” he said. “We have a doctor with a 30 unit apartment complex in Glendale, CA. We talk to him maybe once a year, at tax time.
There is property management software out there that simplifies and automates a landlord’s day-to-day tasks, according to Chris Lee, owner of Landlord Gurus, a website that offers advice for independent landlords and rental landlords.
“The property management software simplifies and automates the day-to-day responsibilities of landlords, from advertising, tenant screening, accounting and rent collection.” Tenants can even pay their rent directly through the software portal.
Lending money to other home buyers
Perhaps the most passive form of yield in real estate is simply lending money to those who need loans to buy properties, McGriff said. Not only do you get a good return on your money, but in the worst case scenario, when someone defaults on the property, you buy it. “You can be extremely passive.” Goodman says an investor can earn up to 18% return per year by lending money.
Buy your own building
Physicians who have the option of purchasing the building in which they work can take advantage of generous tax benefits, LeBow said. “You can write off large chunks of depreciation over time,” he pointed out, along with management fees and other costs of maintaining the building.
However, a doctor is starting to build a real estate portfolio, said Nima Zegarra: “The first thing I would do is educate myself. Do some research, start reading, network. You should do your due diligence before investing a good chunk of your hard-earned money.