Announcement

Collapse
No announcement yet.

Confused Why Real Estate Investing is Good for Physicians Who can Moonlight

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Confused Why Real Estate Investing is Good for Physicians Who can Moonlight

    Hey all,

    I've been doing a bit of homework on real estate investing (Not REITs or funds, I mean buying, selling, renting properties) and I'm stuck at a big point. It seems the way to make any real money at this is to go out, find deals, and do deals. The profits I've heard about though - and I'm sure there are others that are more impressive - haven't blown me away only only because I know how much physicians can make moonlighting. Certainly moonlighting is more active and less passive, but finding and doing deals certainly isn't totally passive. A couple weeks of moonlighting, depending on the field, and you've basically made all the money you could have made on a lot of deals.. I guess it's the fact that these properties theoretically cashflow for many, many years and into retirement? What am I missing? Thanks for the thoughts.

  • #2
    some people don’t like their work all that much

    maybe you have to travel to moonlight

    real estate investing can have tax advantages (1031 exchange etc)

    spouse can be involved

    can be more easily leveraged

    can me more passive

    something else to talk about

    just a few thoughts. I don’t invest in real estate

    Comment


    • #3
      Originally posted by bullsdoc View Post
      Hey all,

      I've been doing a bit of homework on real estate investing (Not REITs or funds, I mean buying, selling, renting properties) and I'm stuck at a big point. It seems the way to make any real money at this is to go out, find deals, and do deals. The profits I've heard about though - and I'm sure there are others that are more impressive - haven't blown me away only only because I know how much physicians can make moonlighting. Certainly moonlighting is more active and less passive, but finding and doing deals certainly isn't totally passive. A couple weeks of moonlighting, depending on the field, and you've basically made all the money you could have made on a lot of deals.. I guess it's the fact that these properties theoretically cashflow for many, many years and into retirement? What am I missing? Thanks for the thoughts.
      a) agree on the moonlighting income piece--invest that money and it will also grow/provide passive cash
      b) what you are missing is the tax benefit piece
      c) debatable whether "b" is worth the hassle

      Comment


      • #4
        Leverage. Favorable tax treatment. Cost segregation, accelerated depreciation, 1031 exchanges, stepped up basis at death, Opportunity Zones, etc.

        A high income professional like a doctor, dentist, or lawyer who is married to a spouse who legitimately qualifies as a real estate professional means you can use passive losses to offset active income.

        All that said, a fair number of folks who are real estate zealots don’t understand stock and bond investing and are dismissive of “paper assets” and the “Wall Street casino”. In reality, “passive income” is an awful lot of active work. Tenants pay late or don’t pay at all, trash the place, sue you for their own stupid conduct, etc.

        A REIT fund won’t call you at three in the morning when the toilet doesn’t work.

        Comment


        • #5
          Originally posted by G View Post

          a) agree on the moonlighting income piece--invest that money and it will also grow/provide passive cash
          b) what you are missing is the tax benefit piece
          c) debatable whether "b" is worth the hassle
          Thanks for the response, this is really great. True that I did not think a lot about the tax component. Still doesn't seem worth it to me when as you say I could just work a bit more and put that into the market, but I understand that's a personal call.

          Comment


          • #6
            Originally posted by Hank View Post
            Leverage. Favorable tax treatment. Cost segregation, accelerated depreciation, 1031 exchanges, stepped up basis at death, Opportunity Zones, etc.

            A high income professional like a doctor, dentist, or lawyer who is married to a spouse who legitimately qualifies as a real estate professional means you can use passive losses to offset active income.

            All that said, a fair number of folks who are real estate zealots don’t understand stock and bond investing and are dismissive of “paper assets” and the “Wall Street casino”. In reality, “passive income” is an awful lot of active work. Tenants pay late or don’t pay at all, trash the place, sue you for their own stupid conduct, etc.

            A REIT fund won’t call you at three in the morning when the toilet doesn’t work.
            True the degree of distrust on some of these websites, podcasts, etc. has really been striking to me. I remember 2008 quite well and there's no guarantee at all real estate holds up this time either. Unsure why the level of distrust.

            Comment


            • #7
              I invested in real estate and the gains in both income and net worth have been impressive over the years. But there is a modest amount of work involved, and my other investments in stocks and other ventures also turned out well.

              If I had it to do over, simple stocks and bonds would have been just fine, and less work.

              At this point, it is nice to have significant, continuous, passive income from the real estate, but there is a small amount of work involved. All else being equal, I would sell my real estate holdings, but the tax bill would be substantial for capital gains and depreciation recapture and I am not willing to pay that. Maybe I will donate the real estate to charity at some point, who knows. Or maybe I hold until death and pass this on to the kids at a stepped up basis in the future. Perhaps the kids will take over the real estate management piece at some point when we get old.

              Comment


              • #8
                The correct reason for buying real estate is diversification.
                Different investments take a different effort, education and follow different rules and are taxed differently.
                Total returns = appreciation + net income- taxes
                You can run a service business too, Bullsdoc Pest Control.

                Comment


                • #9
                  Some people just enjoy doing things other than their primary job even if it means more work and less money.

                  Comment


                  • #10
                    Originally posted by White.Beard.Doc View Post
                    I invested in real estate and the gains in both income and net worth have been impressive over the years. But there is a modest amount of work involved, and my other investments in stocks and other ventures also turned out well.

                    If I had it to do over, simple stocks and bonds would have been just fine, and less work.

                    At this point, it is nice to have significant, continuous, passive income from the real estate, but there is a small amount of work involved. All else being equal, I would sell my real estate holdings, but the tax bill would be substantial for capital gains and depreciation recapture and I am not willing to pay that. Maybe I will donate the real estate to charity at some point, who knows. Or maybe I hold until death and pass this on to the kids at a stepped up basis in the future. Perhaps the kids will take over the real estate management piece at some point when we get old.
                    Thanks, this is a good opinion to see here. Can you explain why the tax bill would not be worth it, assuming you're selling a property you own? Are long-term capital gains so overbearing? Again my understanding was that tax advantages, even outside of a 1031 exchange, were a major benefit here.

                    Comment


                    • #11
                      Originally posted by CordMcNally View Post
                      Some people just enjoy doing things other than their primary job even if it means more work and less money.
                      Totally get it. Assumed that crowd to be a bit smaller in a field like medicine. Maybe it is and we just see the diverse opinions anyway, or maybe I'm wrong entirely

                      Comment


                      • #12
                        Originally posted by bullsdoc View Post

                        Totally get it. Assumed that crowd to be a bit smaller in a field like medicine. Maybe it is and we just see the diverse opinions anyway, or maybe I'm wrong entirely
                        I think it’s more prevalent in professions where people have the financial resources to branch out.

                        Comment


                        • #13
                          I had a long response weighing the pros and cons and my personal experience drafted in my mind but then decided typing it out wasn’t worth the effort.

                          if you invest in real estate it is likely you overestimate the pros if you’ve had a good experience (combo of skill + luck) and will overestimate the cons (3 am toilet calls—who gets these???) if you haven’t

                          if you don’t want to invest in real estate you will underestimate the pros and overestimate the cons to reinforce your lack of desire to do so.

                          New docs will see moonlighting as more attractive and lucrative than seasoned docs.

                          When you weigh pros and cons, you need to consider both the short view and the long view. I think your question is primarily considering the short term view. The long term view will involve a lot of assumptions and the answer will change depending on what assumptions you choose (and the reality of the answer will change on, well, reality—which you can’t predict).

                          Still ended up typing too much. Off to enjoy this beautiful Sunday!


                          Comment


                          • #14
                            I admit upfront that I've drunk the real estate "Kool Aid" but for me it was the way to go to diversify investments, develop non medicine related cash flow and now the real estate is my retirement income. Is it work? Sure but it can be as much or little as you choose to make it. I use management companies so never deal with a tenant. It is a team game however and you need good agents, banks, CPA, lawyers etc... to do it successfully. The advantages have already been stated by the others but the biggest for me is the tax advantaged income, completely independent of the stock and bond markets. Good Luck

                            Comment


                            • #15
                              The thing about many investments, people get different levels of benefit from the same investment, as well as varying degrees of "active involvement" and consequentially different levels of satisfaction.

                              Here I am mid career, with over $4M invested into CRE. Well I never wanted or intended to become a commercial landlord, believe it or not. Why then did I acquire the real estate? Simple answer is the biggest benefit from CRE - growing my own business. I maxed out utility of my first office building, modestly just under 3k sq ft. Staying there would have hindered business expansion. Fast forward to 2017, nobody wanted to build so interest rates were very low and construction costs were reasonable. Come 2018, I saw the writing on the wall in the markets and an opportunity to expand my business with a desire to build a 5-6K sq ft office building. Once the land was acquired in a high profile location, multiple providers came to me expressing the desire to lease and agreed to sign leases prior to start of construction as well as make all the effort to design their own spaces. I agreed, not thrilled about the prospect of lease income, but I saw I had significant risk of outgrowing my space several times over the coming 20 years. Therefore, I purchased the adjacent lot and grew the project to 16K sq ft. As the tenants move out over the coming years, I see the opportunity to grow the business to over $10M/year in today's dollars, and further ability to expand the building if needed.

                              Business expansion is by far the biggest benefit of the real estate for me, and that growth will significantly enhance the gunpowder available for market investment over the coming years as a secondary benefit. A third major benefit is the expanded value of the business over the coming two decades when it's time to consider handing off the baton..

                              In the meantime though, we've already discussed tax benefits. Our lease revenue collections are about $1M every 2.5 years, holding on the property another 25 years means $10M (today's dollars) in accumulated lease revenue if I decide not to expand, minus about 25% overhead, plus appreciated value of the property.

                              It would take a whole lot of moonlighting for me to generate all these benefits. 4 tenants, 4 checks per month from medical tenants is not that difficult to collect. One of our employees with property management experience manages all tenant calls/requests if you're worried how passive the investment may be, after all our most valuable asset is our time.

                              Now that the bull market has been broken and the overleveraged will wind up in bankruptcy/foreclosure a setup for the next solid bull market in the near future means now is time to refocus allocation to the markets. To everything there is a season. Easy for people to say just put it all into the markets, but in my case that would have prevented business expansion, decreases asset class diversification, and would have increased my NW volatility to the whims of market uncertainty.

                              Now collecting equivalent amounts from 30 or 40 individual residential tenants, I too find that rather unappealing. Not all RE opportunities are created equally. The best opportunities are the ones that seek you out as was my story, rather than me seeking it out. I find that true in all aspects of life. Trying to create an opportunity where it may not be there will likely result in unfavorable outcome. Be patient, good things come to those who wait. If it's not the right time for RE it isn't the right time, if it is you'll have peace about it. Come on, tenants seeking you out and signing leases pre-construction? Good things happen for us on God's schedule, not ours.

                              Comment

                              Working...
                              X