Most physicians I know are comfortable following the traditional advice of investing in the stock market, hoping that their money will be there when they retire in 20-30 years.
For years, I did exactly that: placed my money in IRAs, 401ks, and index funds…until I discovered that some of the richest people made their money through real estate (not by contributing to a 401k), and I wanted a piece of that too.
I did what most people do when they want to invest in real estate: I found my own properties, got a loan, purchased them with my own money, found the contractors and property managers, and approved tenants. But I also had to deal with vandalism, leaky roofs, broken dishwashers, and evictions.
So on my nights and weekends, after a long day in the clinic or OR (or when I finally got my two-year-old to calm down because she didn’t like the pajamas I had put on her), I then had to deal with all the responsibilities that came along with being a landlord. Not exactly my idea of passive income.
Then I was introduced to real estate syndications. Syn-da…WHAT? Don’t worry, you’re not alone. That was my initial response when I first heard this term too. I was very skeptical and thought that real estate syndications were some type of multi-level marketing Ponzi scheme. But after much research, education, and first-hand experience, I can tell you that the benefits of investing passively in real estate syndications are real and powerful.
So first of all, what is a real estate syndication?
A real estate syndication is where a group of investors pool their resources together to purchase a property.
A syndication is composed of the general partner (GP), also known as the sponsor or syndicator, and the limited partners (LP), also known as the passive investors. The GP is responsible for acquiring and managing the entire project, while the LP contributes capital to the deal and earns a percentage of the profits.
For the passive investor, other than doing the upfront work of vetting the sponsor/deal and making the initial investment, they don’t do much else other than collect money in their bank accounts. Now that’s my idea of passive income.
Below are 5 reasons why physicians should consider investing in multifamily (i.e. apartment) syndications:
#1 – Cashflow
Who doesn’t want an additional income stream without having to do any work? Sign me up!
The medical system has beat it out of many of us, and more and more physicians are looking for ways to earn passive income so they can have more time, stop working those night and weekend shifts, or pivot their careers in a different direction.
Cashflow is what goes into your pockets after all expenses and debt are paid each month. In passive multifamily investments, the distributions come in either monthly or quarterly. The best part of it all? The money comes in whether you work or not. The money keeps rolling in, even while you’re sleeping.
#2 – Tax Benefits
As physicians, our biggest expense is our taxes. On average, we spend the first five months of the year working for free, due to the large amount of taxes we pay to Uncle Sam. Real estate can help you reduce some of that tax burden.
One of the greatest gifts that the IRS has given us is depreciation. Depreciation is a reduction in the value of an asset with time due to wear and tear. So with real estate, you can take a paper loss even though the actual value of the property is actually increasing. These paper loses can help reduce your tax burden by offsetting other income.
#3 – Appreciation
Appreciation is an increase in the value of a property over time. Unlike residential real estate (1-4 units), where the valuation is based on comparable sales (i.e. you don’t have control), commercial properties like apartments are directly valued on the property’s revenue (i.e. you do have control). The higher the income and the lower the expenses, the greater the property’s value. By investing in value-add multifamily properties, you get to take advantage of something called forced appreciation, where increasing income and/or lowering expenses can drive up the value of the property.
#4 – Lower Risk
With apartments, there are multiple units that can be used to offset a loss in rent from any vacancies. For instance, if 10% of a 200-unit apartment is vacant, you’re financially okay because the other 90% of the tenants are still bringing in income. Contrast this with a single-family home: when the house is vacant, your income goes to zero and you end up having to come out of your own pocket to pay the mortgage, insurance and other expenses. No thanks.
#5 – Economies of Scales
Economies of scale (EOS) refers to the economic advantage gained as the scale of a business or investment gets bigger. Buying in bulk is a great example of EOS. I love shopping at Costco because the price per unit is less by buying a larger quantity. This same concept applies to multifamily investments. It is less expensive to build, operate and maintain larger properties. In addition to minimizing risk (see #4 above), EOS allow for greater returns, accelerated appreciation, and greater tax benefits.
Ready to Get Started in Real Estate Syndications?
Are you ready to unlock the benefits of multifamily investing?
Start by joining the Clear Vision Investor Club (it’s free), where you’ll get access to exclusive members-only content to help you on your real estate investing journey.
