Real Estate Investing for Doctors: 2024 Guide
Why might doctors want to invest in real estate? Real estate investing for doctors can make a lot of sense. In fact, a total of 29% of Americans said that real estate was their top method of investing their money when they don’t need it for 10 or more years, according to a Bankrate survey. Stocks came in at 26% of votes.
The average real estate investor makes between $70,000 and $124,000, depending on the type of investing you do and the number of deals you take on per year, the time you spend on it, and other factors.
Let’s take a look at why real estate is good for physicians, the type of real estate, ways to invest, tax benefits, basics of investing, and who should be on your team if you dive into real estate as a physician.
Why is real estate good for physicians?
Real estate can offer a wide variety of financial opportunities, including the fact that it offers a solid way to increase and diversify your income stream. It may even help prevent burnout if you know you have other sources of income. If you know you don’t have to rely on being a doctor for most of your income, you may have the option to cut down to half-time or quit altogether as long as your real estate business is profitable.
Types of real estate
Fortunately, you can take advantage of different types of real estate investments. You can choose between passive and active real estate investing opportunities. They both offer various pros and cons — the type of investing method you choose may come down to the amount of time and energy you have available to sink into managing all aspects of a real estate transaction.
- Passive real estate investing: In passive real estate investing, you give money to a team and they invest for you. You don’t make all the decisions about every aspect of the real estate you’re invested in. A few examples of passive real estate investing include real estate investment trusts (REITs), crowdfunding opportunities, remote ownership, and real estate funds. Let’s take a look at each of those types of passive investment:
- Real estate investment trusts (REITs): A real estate investment trust (REIT) is a company that owns, operates, or finances real estate that produces income.
- Crowdfunding: Real estate crowdfunding connects investors to property investments using social media and the internet.
- Remote ownership: Remote ownership allows you to own rental property in another city or state from where you live.
- Real estate funds: Real estate funds, otherwise known as mutual funds, invest in securities offered by public real estate companies.
- Active real estate: When you invest actively in real estate, you make all the decisions and you also put in the sweat equity and effort into handling the investment. Property flipping, short-term rentals, owning your own home or a second home, and other types of real estate that you handle directly can fall into this category.
Ways to invest in real estate
Let’s take a look at a few concrete active real estate investing opportunities, or ways that you can manage your own property.
- Invest in your own home: Real estate investing doesn’t always have to involve the bells and whistles of owning a hundred rental properties. You can keep it simple by investing in your own home by purchasing it for your own use as a primary residence. When you purchase your own home, you benefit from the stability of knowing that you own your own home, as well as benefits like tax deductions and the ability to build equity in it over time.
- Invest in a second home or vacation home: Investing in a second home or vacation home means that you purchase an additional home for vacation purposes for yourself to live in during another part of the year.
- Invest in a property for your adult child: Do you have an adult child who has struggled to gain their footing or could use a boost as they navigate the waters of adulthood? Or perhaps you want an investment property project that you can work on alongside your child. They may serve as your tenants as you work on the property together or simply help your child find a place to land.
- Invest in a rental property: A rental property is one in which you purchase and rent out to tenants. You’ll collect rent from tenants for as long as you want to rent out the property. It’s an excellent way to earn money, but it’s important to pencil out the reality of earning money on rental properties. For example, let’s say you want to earn $50,000 on rental properties. Mortgage payments, stiff competition, and renovation expenses might eat into your costs. Therefore, you may only profit a few hundred dollars a month, depending on the type of investment you make. You’d need to earn over $4,166 from your rental property after expenses to reach that target.
Tax benefits for physicians who own real estate
As a high-earning physician, you may want to do everything you can to minimize your tax burden, which could involve lessening your taxable income so you save money when you pay taxes. That may include deducting business expenses, taking advantage of real estate investment tax deductions as well as depreciation over time and the pass-through deduction. Let’s go over all of these options available to you.
- Business expenses: When you own a real estate investment business, you can deduct any business expenses directly related to your investment, including the costs of advertising, office space, business equipment, accounting or legal fees, travel, and more.
- Real estate investment tax deductions: You can deduct real estate investment tax deductions related to management and property maintenance, including property taxes, insurance, mortgage interest, property management fees, and costs to maintain the investment property.
- Depreciation: Most things lose value as they get older, such as appliances in a rental home. If you own a rental property that produces income, you can deduct the depreciation on it. You can take the depreciation deduction for the expected life of a property, which the IRS has set at 27.5 for residential properties and 39 years for commercial properties.
- Pass-through deduction: The pass-through deduction allows small business owners (including landlords and solo practitioners) to deduct up to 20% of business profits at tax time.
The basics of investing in real estate
Let’s look at three basic “real estate investment for doctors” tips.
There are two old adages that mean a lot in real estate investing: “Buy low, sell high” and “location, location, location.”
Buy low, sell high simply means that you purchase the property at as low a price as possible, then sell the property for more when you’re ready to sell. (Or better yet, never sell at all and keep the appreciation going.) Property ownership offers both capital and income growth and our tax rewards long-term physician real estate investing and ownership. Furthermore, doctor real estate investors can create generational wealth by owning income-producing assets over a number of years.
Next, real estate investing for doctors still means you should buy in a good location. Even doctors investing in real estate won’t get a second look if a home exists in a poor location in a city or suburb. A real estate agent can give you a broader understanding of whether you’re targeting a good investment. Therefore, a doctor and real estate agent can make a potent combination.
Finally, look for turnkey options. This means that properties are move-in ready, which means you won’t need to hang up your stethoscope to become a handyman. You can get tenants into a property right away.
Is this everything you need to know about being a doctor/real estate investor? No, and one of the best things you can do is to get to know the market, and other professionals who have done the same and also make sure you’ve penciled out the numbers — will it truly be a good investment?
Who should be on your real estate team?
You don’t have to go it alone. You can examine the numbers and go about the process with a dedicated team, which may include an accountant, attorney, realtor, handyman/property manager, and others. They can advise you on the many financial considerations required to understand your real estate investment as well as saving you time that you could otherwise spend at your day job — your practice.