We revisit our second post, originally published in January 2018. In our first post, we gave you our definition of financial freedom. In this post, we present one of the most powerful vehicles for getting you there: real estate investing (more specifically cashflowing rentals). We also describe some of the unique benefits of cashflowing rentals and why doctors and high-income professionals are so well-suited for this type of investing.
[2023 update: This is an updated version of our second post, originally published in January 2018. A lot has changed in the last 5+ years. We experienced a COVID pandemic, a mini-recession, and now, difficult to control inflation and rising interest rates. But some things haven’t changed. Real estate investing, and more specifically cashflowing rentals, is still one of the most powerful vehicles for getting you to financial freedom quickly, something we have coined, Fast FIRE.]
We believe real estate investing is one of the fastest and most accessible ways to achieve financial freedom and help you achieve semi-retirement.
But why are doctors and high-income professionals so well-suited to investing in real estate?
There are a whole host of reasons. We cover each one in detail below, so you can decide if real estate investing is the right fit for you.
You earn a lot of money
With the average salary across most specialties now cresting above $200,000, doctors are in a unique position to be able to invest in real estate. While it may take years for a person making minimum wage to save enough for a down payment on an investment property, doctors can save up for a down payment more easily.
This is not to say that saving is easy.
No doubt doctors are disproportionately saddled with education-related debt. The latest data from the Education Data Initiative shows that the “average medical school debt is $202,450, excluding premedical undergraduate and other educational debt.” Most graduating residents have a large portion of their monthly income going toward paying off their loans.
Nevertheless, saving enough for a downpayment on a single-family home, duplex or even fourplex is within reach of most of us with a concerted effort. And once you have that first property bringing in some cash flow every year, it only gets easier because you can save up that cashflow (and tax benefits – see below) to put towards the next property.
It’s the snowball effect – getting your first property will make buying your second and third that much easier.
Real estate is relatively passive
Real estate investing is a relatively “passive” source of income. The reason is that time and money can be decoupled in real estate investing (as compared to your regular day job where time spent = money you receive).
While there are certainly more truly passive forms of real estate investing (like putting your money into turnkey properties, real estate funds, or syndications), we like to characterize the type of real estate investing we do (investing in cashflowing rentals) as more of a semi-passive activity.
This is possible if you buy a property right and leverage readily available resources such as investor agents, contractors, and property managers.
It’s important to point out that there are also forms of more active real estate investing such as flipping, also known as buy and sell. These types of activities are much more in line with trading time directly for money (like your day job) and don’t come with the same tax benefits that you get with investing in cashflowing rentals.
Now, it’s important to pause here and acknowledge that doctors are busy. In a survey of 5,000 docs, 25% reported working more than 60 hours per week. And this definitely poses a challenge to find the time to build an investment real estate empire.
There is good news though. Much of the work of investment real estate can be squeezed in the cracks. What this means is you can look for properties early in the morning before work (the best time of day to look!). Or you can reply to an email while waiting in line at a coffee shop.
If you follow the buy-and-hold strategy of real estate you can even afford to take trips and time away without devoting a lot of energy to your properties.
Bottom line is, you can fit real estate investing into your life, even if you’re working a full-time 1.0 FTE position.
Real estate gives doctors a way to shelter their high incomes
Tax benefits are perhaps the most compelling reason for doctors to commit to real estate investing.
These benefits are significant for doctors because there are hardly any meaningful deductions for a) salaried employees (and an increasing proportion of doctors are employed) and b) high-income earners (most deductions are phased out when you make over $150,000).
Once you start a real estate business, you can immediately start taking advantage of tax write-offs. We cover the many ways you can maximize these tax deductions in this podcast episode.
More importantly, if either the doctor or his/her spouse is able to grow their real estate holdings over time and one of them can cut back on their job so that they are able to be devoted to the real estate business, that person can achieve a tax classification called “real estate professional.” If one person becomes a “real estate professional,” as a couple, they can then write off all real estate “losses” directly off of their W2 income.
Kenji, for example, has “real estate professional” status while I continue to work (currently half-time) as a hospitalist (to jump ahead and read more about this status, click here). In order to achieve this status, Kenji cut back to half-time initially and then became a moonlighter, picking up shifts here and there, wherever it suited our schedules.
What we found was that by cutting back his day job and achieving real estate professional status, the cashflow and tax savings more than made up for the lost income.
Real estate can have a high return on investment
One of the most exciting features of real estate investing is the potential return on investment.
On average U.S. stock market returns are widely quoted to be between 7-10% per year. Though year-to-year stock performance varies widely, the general idea is if you put $10,000 dollars one year, on average, you should earn approximately $700-1,000 the first year on your initial investment when you go to sell it.
In contrast, with cashflowing rentals, your return can range from 35% to over 200% return. For example, we have one property generating 55% return per year with a program called Supported Living.
It’s important to note that there are many different types of real estate investing with a range of returns.
Cashflowing rentals are on “highest return” end of the spectrum. This is why we focus on this type of investing.
While others might focus on things like “hassle factor,” if you want to achieve Fast FIRE (aka financial freedom while you’re young enough to enjoy it), then you are going to want to focus on the strategy that gives you the highest return.
If you want to understand the different options for investing in real estate, click here.
With that said, we understand that Fast FIRE isn’t for everyone. Some prioritize diversification. Others prioritize minimal hassle factor.
Real estate syndications are a great way to diversify your investment portfolio and the hassle factor is less than cashflowing rentals. If you want to join our community of passive investors and be the first to be notified about exclusive passive investment opportunities, click here.
Real estate is an asset with real inherent value
In the era of Bitcoin, there is a certain sense of security that comes with owning a real asset. Real estate is an asset that has inherent value (not just value based upon what someone is willing to pay that day). You own a real piece of land and a structure. For some of us, this is a really comforting concept.
Real estate gives you a way to diversify
As doctors, many of us are invested heavily in the stock market through our retirement savings. Real estate investing offers a way to diversify your holdings and to ride out a market downturn. Though it undoubtedly has risks, like all investing, the beautiful thing about owning real estate is that you have a commodity that everyone needs. Everyone needs a place to live. There is stability in the fact that your property should never lose its value completely.
You have direct control with cashflowing rentals
Perhaps this one is more specific to a specific personality type – but we think it’s worth mentioning anyway. We’ve always had difficulty having my money in the stock market, where we have no control. Sure we can move around my retirement investments to buy bonds instead of ETFs, but ultimately someone else is running the companies that we’re relying on for our retirement. This lack of control is unsettling.
In contrast, investing in cashflowing rentals puts you in charge of your assets. You can decide if the rents should be increased, if you want to put a shed in the back to rent and/or if you want to sell a property. You own and run your properties. For those of us who like to be in control, this is a pretty amazing characteristic of investing in real estate.
Doctors have the right stuff
Though there is certainly a range of doctor personality types, few would disagree that successfully finishing medical school and residency requires critical-thinking skills, organization and focus. All these characteristics are well-suited to real estate investing.
Critical Thinking Skills are necessary to differentiate between “good deals” and subpar options.
Organization is needed when running your business and doing things like putting together your taxes or filing paperwork for your LLCs.
Focus and determination are required to follow through with your personal goals of financial freedom and achieve them, one step at a time.
People skills are necessary to successfully managing your team (investor agents, property managers, contractors).
And finally, real estate investing is fun. It is a challenge; it is work. But it is extremely gratifying to build your real estate business and see your work turn into actual cash flow and tax savings, which supports you and your family’s future.
Final Thoughts: Why we love real estate over other forms of investing
While we have 401ks, 529s and HSAs like many of you, we believe real estate investing (and more specifically investing in cashflowing rentals) should be a main pillar of your investing strategy. It offers high returns, tax benefits and leads to diversification and increased personal control over your investment portfolio.
Moreover, investing in real estate will get you to semi-retirement (and financial freedom) much quicker. Isn’t that what we’re all aiming for?
Still not sure if investing in cashflowing rentals is right for you? Click here to check out our introductory course, Ignite Your Journey: Crash Course in Cashflowing Rentals.
If you’re ready to dive in and learn how to buy your first rental, click here to sign up for our signature course, Zero to Freedom: Cashflowing Rental Mastery, where we teach you what you actually need to know to successfully invest in real estate.
Also, please join us in one of our free private Facebook communities: Semi-Retired Physicians (for doctors of all types) and Semi-Retired Professionals (for high-income professionals).
Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.
