8 Reasons Why a Physician Should Invest In Real Estate

If you google “benefits of real estate investing” you will receive approximately 132,000,000+ results. Obviously, there is a lot of interest and a lot of reasons to invest in real estate. In this post, I am going to share with you the top 8 reasons why a physician should invest in real estate. 

Air Force Physician Real Estate Investor Generational Wealth

1. Cash Flow

Let’s face it, cash flow is sexy and seems to be everyone’s favorite benefit. Cash flow is the income left over after you pay all expenses such as a mortgage, taxes, insurance, utilities, and repairs.  Real estate is an excellent way to acquire cash flow, boost your monthly income, and perhaps allow you to quit your 9 to 5 early. 

Different real estate investment strategies offer different possible cash flow numbers. Typically, the more active real estate investments such as short-term rentals generate significantly more cash flow but require the investor to be way more active. Or, consider a passive investment such as a limited partner on a syndication. This requires minimal time (interview operator, analyze the deal, invest, obtain returns)  but you trade that time for less cash flow and less control. Pick your strategy, figure out your cash flow number, and get after it!  

2. Equity

Equity in real estate refers to the underlying value of a property. It is the difference between the market value of a property and the amount of debt (mortgage balance) outstanding on the property. In other words, equity is the portion of the property that the owner actually owns after all liabilities have been paid.

For example, if a property has a market value of $500,000 and there is a $300,000 mortgage on the property, the owner has $200,000 in equity. As the property appreciates and the value of the mortgage is paid down by tenants, the owner’s equity in the property will increase.

Investing in real estate can help to build wealth over time as the value of the property increases and the mortgage is paid down. Building equity in a property can also provide a source of cash when needed, as the owner can sell the property or take out a loan against the equity, called a home equity line of credit

3. Appreciation

Appreciation in real estate refers to the increase in the value of a property over time. It can be affected by a variety of factors, including real estate market changes, improvements made to the property, inflation, and the overall strength of the local economy. Appreciation is also influenced by supply and demand. If demand for a particular area increases, appreciation will likely increase at a faster rate in that area.

4. Tax Benefits

As a physician, we are lucky to make an above-average income. However, this often means we are also paying above-average taxes. Real estate can help you take advantage of deductions and credits to lower your tax liability. Oftentimes, physician real estate investors can deduct multiple expenses related to owning and maintaining a rental property such as mortgage interest, property taxes, and repairs.

Also, depreciation can be claimed which allows them to write off the depreciation costs of the property over time decreasing your tax burden further. One of the greatest tax benefits of real estate investing is the 1031 exchange. Incredibly, investors can defer paying taxes on the sale of a rental property by using a 1031 exchange to invest the proceeds into a new property. Multiple nuances exist, so make sure to do your research.

5. Leverage

Leverage is an incredibly powerful benefit of real estate investing. It allows physician real estate investors to purchase investment properties with a small amount of money upfront (downpayment) and finance the rest of the property with a mortgage. This is like buying 100 shares of a stock but only having to purchase 10-20 initially. Downpayment amounts can vary from 0-25% most commonly. But, this depends on the loan product that is used.

6. Diversification

Physicians should invest in real estate for diversification. This allows you to reduce risk by spreading investments across different asset classes such as stock, bonds, etc. You can also diversify your real estate holdings by investing in different asset classes such as single-family homes, apartments, mobile home parks, etc. This can help physician real estate investors in the event of an economic downturn.

7. Protection against inflation

Inflation has certainly been on the rise. I mean, just look at the price of eggs for example. Real estate can be used for protection against inflation. When the prices of goods rise, home values and rents typically do as well. This helps physician real estate investors hedge the effects of inflation.

8. Control

Physician real estate investors have more control over their assets. When you own real estate you are your own boss. You can impact the performance of your rental properties by increasing the value of the property. Also, you can decide to sell the property when you want.

These 8 reasons why a physician should invest in real estate are a good starting point to understand some of the many benefits of investing in real estate. What are some other benefits that you know of? Let us know in the comments.

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