As physicians, you work hard to build your practices and maintain them, along with the other stresses of daily life. You also need to make sure that you have the financial security necessary to sustain those practices and your retirement well into the future. The best way for many physicians to do that is through passive income.
Passive income is money that you earn without having to work for it besides an initial investment or infrequent check-ins. It's a growing trend in the investing world, but most people don't fully understand how it works or where to start.
Passive income can be earned in many different ways, but one of our favorites is real estate investing because it allows physicians to earn money without having to be actively involved with running a secondary business or holding down a full-time job elsewhere. Real estate investing is a tried and true way to make money. The real estate market has its ups and downs, like any market, but when it comes down to it, real estate is always in demand. Making money from real estate investments takes little time or effort once you've gotten started.
In this article, we'll talk about passive income and explain why real estate is one of the best ways for physicians and other professionals to build wealth.
How Physicians Can Build Wealth Through Real Estate
Real estate can be used as an investment vehicle under the umbrella of passive income because you have little control over what happens after you buy it—it just sits there, generating revenue for years or even decades at a time.
If you're looking for ways to build wealth as a physician, real estate might be your ticket to a stable and profitable passive income! If you set aside money for a down payment on a small rental property and the bank puts up the rest, just like a typical mortgage, the rental income from the property should provide you with a positive cash flow that pays for the mortgage and all other related expenses.
As the property appreciates over time and the payments on the mortgage, you will own this property outright and have a strong rental history to fall back on as a secondary source of income.
Why Real Estate is the Best Form of Passive Income for Physicians
Real estate is a long-term investment that allows you to leverage the equity in your home or other properties. You can use your real estate investments as collateral to borrow money for other ventures, start new businesses, and much more, making it the ideal investment vehicle for many physicians for the following reasons:
First, real estate is a proven way to build wealth. Second, real estate can be a great way to earn passive income. Third, it's not correlated with the stock market, so it can help you avoid the ups and downs of your investment portfolio.
Fourth, there are tax benefits that come with investing in rental properties, as well as property flipping opportunities from time to time (if you're willing).
Fifth and finally, like any other asset class out there today (bonds/stocks/etc.), there's always risk involved when dealing with any type of investment (real estate included).
Keep in mind that each year the average rents across the country rise by 2% - 3% depending on inflation, supply and demand, the local market, and the job market surrounding the area your property is located in. This means that not only will your rental income increase each year but so will your profits. These reasons and so many more make real estate investing the best passive income source for doctors by leveraging real estate to build wealth.
The Pros and Cons of Real Estate Investing for Physicians
While real estate investing has its pros and cons, it's a great option for physicians who want to become financially independent with minimal effort or work other than your initial monetary investment. In addition to the many benefits of passive income, you can also deduct your losses from your income taxes as an "ordinary and necessary" business expense. Here are some additional pros and cons of real estate investing:
Pros of real estate investing.
Cash Flow. You can earn regular monthly income from a property even when you're not managing it.
Tax Benefits. As an investor who earns rental profits through depreciation deductions and other write-offs related to owning properties instead of just having cash sitting around somewhere with low returns year after year; this means more money going into your pocket every single year without any effort put forth
Stability. The real estate market is relatively stable and avoids some of the pitfalls the stock market and other investment vehicles encounter.
Demand. Everyone always needs a place to live. Rentals and the need for rentals will never go away. With the rise in short-term rentals like Airbnb and VRBO, consider using your investment real estate as a short-term rental with proper management from a real estate management company or stick with the traditional long-term rental model.
Low initial investment. Real estate investing offers one of the greatest opportunities to take advantage of leverage because it involves purchasing assets with debt (loans). You can buy a property with little or no money out-of-pocket!
Cons of real estate investing.
Liquidity. Since your initial deposit is tied to the value of the home, you won't have access to that cash.
Bad Tenants. Selecting the right tenants to occupy your investment property is critical. If you have the wrong tenants who cause significant damage to your property, you will be liable to fix these issues and make repairs.
Loan Debt. Unless you are able to purchase the investment property in cash, you will now owe a bank or other financial institution monthly loan installments, potentially putting a hold on other purchases in your life.
You Should Consider Real Estate Investment As Your Passive Income Source
Real estate is a good investment for doctors because it's a long-term investment. Real estate is also a great way to get started as an investor because it offers stability and low risk. The real estate market tends to fluctuate less than other asset classes, which means that its performance won't likely move dramatically from year to year—or even month to month!
We hope that you've learned a lot about the advantages of physician real estate investing. It can be a great source of passive income, but it also has its drawbacks. However, if you have been looking for ways to earn passive income or build wealth as a doctor, this is one option that shouldn't be overlooked.
David Price MD is the Founder and CEO of getFREED, a business providing real estate education and vetting of individual deals to help physicians and other healthcare professionals build a passive stream of income, allowing them to work less and practice on their terms.
David lives with his wife and two daughters in Atlanta, GA, USA.
To find out more about David and getFREED, head to http://www.get-freed.com.