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3 Ways for Physicians To Make Money in Real Estate


Real estate can be a tricky beast. Yet, physicians are in a unique position to wrestle with that beast once they have paid off their student debt.

This article is an excerpt take from a recent podcast with Josh Mettle

In our last article, we focused on real estate & cash flow. Cash flow is king! Make sure to follow the magical formula we addressed in that article when you are looking at buying a property for rental purposes.

However, there are many ways for physicians to make money through owning individual pieces of real estate.

Depreciation. Beyond cash flow, the next way you can get paid in investing in real estate is through the tax advantage of depreciation.

Depreciation is this piece of the tax code that says that if you own an apartment building or a rental property and you have to qualify — we can get into that a little bit more – but if you qualify, then you can depreciate that asset.

If you have a $1 million apartment building and let’s say your land is worth $300,000 and the buildings is worth $700,000, the building

but not the land

can be depreciated.

You can depreciate that $700,000 apartment building every year. That gets to be written off of your tax returns.

If you are in a 39% tax bracket, especially as an attending, and you live in the State of California and you’ve got another 17% of estate taxes in addition, that

depreciation is very, very, very valuable over a long period of time

especially if the appreciated asset is passed on to your heirs.

Amortization. The next way you can get paid is through amortization. Amortization is really compound interest in reverse.

It is amazing. In the first five to 10 years, amortization isn’t really all that important because you’re only chunking off a couple of thousand dollars per year.

However, when you look at an amortization schedule from year 15 to year 30, it is astronomical! If you looked at your balance and you plotted your balance on a graph, it would go across and then it would just like fall off a cliff for that last 15 years.

If you turned that on its inverse, it looks very similar to what compound interest would do. Realize that each month when you are making your mortgage payments, you have amortization working for you.

Appreciation. Beyond all of those ways, there is appreciation.

This is a bonus because most of our analysis should focus on cash flow, amortization, and depreciation.

Inflation has been insanely low over the last 10 years. This is the lowest decade for inflation that we’ve seen in the last 70 years.

In the midst of this low interest rate and low inflation environment, many folks have forgotten about inflation. If you look on a longer timeline, inflation has been a tremendous force to grapple with.

Here’s a shocking statistic: If you look over the last 100 years going back to 1913, inflation has increased 2,275%, which means goods & services cost roughly 23 times more today than in 1913.

Why is that a good thing for a real estate investor? When you talk about goods & services costing more, that means home prices also tend to rise….

It also means you can bump up the rent that you charge!

Final Thoughts

Real estate can be a tricky beast. Yet, physicians are in a unique position to wrestle with that beast once they have paid off their student debt.

Overall, real estate is something many doctors should consider as part of their asset mix to generate cash flow in retirement.

Consider the many pockets that real estate can line.

First, you put some money in your front pocket, which is the cash flow that goes into your checking account.

Then, you put some money in the other front pocket, which is the depreciation that allows you to bank more money each year because you pay less in taxes.

Then you put some money in the back pocket, which is the “back-door” savings account of amortization.

Finally, if you’re patient & a little lucky, you may even walk away with some cash in hand through appreciation… perhaps even a ton!

P.S.: I am not a “real estate guy”. I don’t manage properties for folks. While I have little to do with real estate transactions for clients, I help regularly with analysis on cash flow and amortization. If you have a question about your rental property or are considering one, feel free to give a shout.

Dave Denniston, Chartered Financial Analyst (CFA), is an author and authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with. He is the author of 5 Steps to Get out of Debt for Physicians, The Insurance Guide for Doctors, The Tax Reduction Prescription, and his new book, The Freedom Formula for Physicians. You can catch his latest podcast at DoctorFreedomPodcast.com.

He’s glad to answer any questions about insurance policies or other financial matters. You can contact him at (800) 548-1820, at dave@daviddenniston.com, or visit his website at DoctorFreedomBook.com to get a copy of The Freedom Formula for Physicians.

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