Passive real estate investing helps physicians build wealth

Masaki Oishi, M.D., Ph.D.

Medical Economics Journal, Medical Economics May 2021, Volume 98, Issue 5

How can a successful physician create a work-life balance while dealing with countless demands from patients, employees and physician groups?

How can physicians create financial independence, wealth and prosperity without working 15 hours a day, doing multiple jobs or offering additional products, services and treatments?

Every investor has one goal: wealth creation. To achieve it, real estate is your best bet.

The overall process is quite simple. If you acquire a rental property by putting up a small amount of money as your down payment and the bank puts up the rest, then the rental income from the property should provide net cash flow that pays for all related expenses. You will own a valuable piece of real estate that will appreciate in value over time, and the senior debt will be reduced through your principal payments.

This concept is so straight-forward that we can summarize it in a simple formula:

Here’s something else to keep in mind: Each year, rental rates tend to go up by approximately 2% to 3%, depending on inflation, supply and demand, etc. So, your property’s value is likely to increase each year because of the expanding net cash flow.

Now, the exciting thing is that by year five you will typically find that your equity has more than doubled (equity is the difference between the property’s value and the mortgage balance you owe the banks).

If you’re wondering why the value of your investment will increase that quickly, it is because as your property’s value rises, the balance on your mortgage is reduced by the rental income covering the interest and principal.

Another attractive benefit to real estate investing is that it can provide an ever-rising income without extra work from you. In other words, hire professionals to manage the property, collect rent, pay bills, etc. This form of income is attractive because it doesn’t keep you from practicing medicine. The money keeps rolling in.

Real estate is not subject to vagaries, emotions and political whims

There are many ways to build a passive income source. Some people invest in the stock market, Treasury bills or automated businesses. Others may lease or license intellectual property, and still others create online businesses. These are all great strategies.

However, as a medical practitioner who is probably very busy helping patients, it is vital that you choose investment options that don’t demand too much active participation. In my experience, there are very few available passive-income opportunities that allow your income to increase over time the way real estate does. Rents generally go up to keep pace with inflation, and in particularly bullish economic times or because of other macroeconomic and supply-and-demand factors, rental income can even double in a short time.

I don’t invest in cars, antiques, art or collectibles. I do invest in stocks, commodities and bonds, but I feel as though I am always playing at a disadvantage. Larger investors with wealth managers and investment bankers have access to far more information and investment opportunities not available to regular investors. As an equity investor, you must be smart, well-diversified and strategic.

The pros and cons of real estate investing

As with most other investment opportunities, real estate investing is risky. The primary risk attached to real estate investing is that there are no guarantees.

General market risk are factors such as the rise and fall of the general economy, fluctuating interest rates, recessions in correlated markets, natural disasters and other factors that are out of your control. The only way to guard against total annihilation is to hedge your bets by diversifying your portfolio holdings. Do not put all your investment eggs into one real estate basket.

Asset level risk has more to do with the sensitivity of consumer demand associated with a certain property type. The demand for hospitality, retail and office space has been adversely affected due to COVID-19. However, properties that have stable demand all year have little risk. For instance, multifamily residential properties are usually in demand, even during bad economic times, making their risk significantly lower.

Liquidity risk is another form of risk peculiar to real estate. Finding buyers is not always easy, especially during market downturns, and most often it takes experienced brokers and real estate agents to find willing buyers during such times. So, any investment in real estate should have a longer-term investment horizon.

When you borrow money from a bank to finance the purchase of real estate, you are leveraging.
A lot of leverage can magnify your returns, but it can also be risky.
If you allow yourself to get in over your head with debt, you risk losing your initial investment and heading into an unending cycle of debt.

Remember, you do not have to keep working hard, paying huge taxes and letting what you have left in the bank doing nothing. That is a risky way of operating that could set you back financially in a few decades to come. It is a lot safer to park your money in real estate, where it will allow you to build wealth and retire comfortably.

If you diligently apply this knowledge, you could one day retire with a seven- or eight-figure net worth, or perhaps more. Who would not want a luxury like that?

Masaki Oishi, M.D., Ph.D., is a neurosurgeon who earned his medical degree from Cornell University Medical College in Ithaca, New York, and his doctoral degree in molecular and cellular neuroscience from The Rockefeller University in New York City. Oishi is the co-founder and chairman of MarketSpace Capital, to which he brings a wealth of experience in commercial real estate, having successfully invested and sold more than a quarter of a billion dollars in commercial properties over the past 30 years.

download issueDownload Issue : Medical Economics May 2021