Physicians: Incorporate a Real Estate Investment Professional into Your Financial Team

As physicians build out their financial teams with professionals such as financial advisors, tax experts and estate planning attorneys, they may also want to add specialty investment experts such as a real estate professional that can help them optimize their wealth.

Doing so can be particularly useful for physicians that want to diversify their investments and potentially increase their gains, yet it’s important not to jump into this area blindly. Real estate can be a broad category, with investments varying from buying a vacation rental property to funding a store’s expansion to taking part in the development of a new apartment building.

Different types of real estate investments carry different risk/reward profiles, investment horizons, tax implications and more, so physicians should take the time to consider their options before investing their hard-earned money.

Benefits of Investing in Real Estate

While real estate can encompass many different areas, some of the more common reasons for investing in this asset class include:

• Diversification: Many investors only allocate to the stock market, meaning their investment portfolios tend to rise and fall with broader stock market performance.
  
  “We’re so busy day-to-day that most physicians put their money into a retirement fund and kind of set it and forget it; it goes into the stock market and that’s it, so all of your exposure is to the market,” says Snehal Doshi, a neonatologist in Beaumont, Texas.
  
  While this strategy works for some who are comfortable riding out market swings, others may want to diversify into other asset classes that don’t necessarily move in the same direction or at the same pace as the stock market. Investing in real estate can provide diversification, such as how housing prices may reflect local economic conditions rather than broader forces that affect the stock market. So when the next stock market crash occurs, for instance, having some exposure to real estate could help provide balance needed to minimize losses.

• Potential outperformance: Depending on your risk tolerance, you may want to take a chance on real estate investments that have the potential to grow in value faster than the stock market, such as investing in a neighborhood within a city that you think is on the verge of substantial growth. While there’s no guarantee that these investments will work out, some physicians will want to take a portion of their savings and invest in the hopes that these investments will outperform other options.
  
  Even if you have a more limited risk tolerance, diversifying with real estate can also potentially lead to outperformance. For example, if real estate happens to outperform the stock market over the next decade, having some investments in both areas would lead to higher gains than if you only invested in the stock market. And if the opposite occurs where the stock market outpaces real estate, you might at least have less volatility along the way by investing in both.
• Tax savings: Depending on your location and the types of real estate investments you make, you can potentially tap into tax advantages that come with real estate. For example, if you invest in rental properties, the IRS lets you deduct certain expenses such as depreciation and mortgage interest, which can help you retain more of the income you generate from these investments. Other tax incentives like tax credits for building affordable housing could also help make some projects more attractive. 

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Why Turn to a Real Estate Professional?

When physicians start to acquire more wealth, they may get offers from colleagues, friends, family, etc., to invest in projects ranging from buying rental properties to funding startups. However, without the guidance of a professional, physicians may end up taking on more risk than they’re comfortable with or having to dedicate too much time to managing the day-to-day aspects of their investments, particularly when dealing with real estate.

While some general financial advisors such as an investment adviser representative (IAR) at a registered investment adviser (RIA) may be able to help physicians with real estate investing to a degree, utilizing a professional who specializes in real estate investing can often help physicians get the most out of this asset class. This concept is similar to how a primary care physician may be able to generally advise patients on a range of ailments, but they would then refer the patient as needed to a specialist to dive deeper into solving the health issue.

Similarly, while a patient may have a general idea of what’s ailing them, trying to solve the issue on their own could make the problem worse, which is why they should see a physician. With real estate investing, “some people think they know better than a real estate professional and try to do it themselves, but that’s when you get into trouble,” says Dr. Doshi.

A real estate professional can help you find investments that match your risk profile, diversification goals, maximize tax savings, etc. Moreover, a real estate professional can handle aspects like hiring property managers and conducting due diligence on properties so that you don’t have to deal with everything yourself.

As a physician, “your focus is going to be on the patient and your practice and growing your career. You’re not going to have time to manage those real estate properties generally,” says Dr. Doshi.

Where to Find a Real Estate Professional

Adding a real estate professional to your financial team can be accomplished in a variety of ways, as there are multiple areas of real estate to consider. For example, you could partner with a real estate broker in your community who is looking for additional capital for real estate projects. You could also invest directly into a real estate investment trust (REIT) or a private real estate fund, where a professional fund manager would handle operations.

To start finding these professionals, you can follow a similar process as to how you find other professionals like financial planners. Ask colleagues for recommendations, search for real estate investing professional associations, and if you see real estate investing professionals in the media that you might want to work with, take the time to thoroughly research them and meet with them to see if there’s a good mutual fit.

Lastly, if you’re already working with a financial advisor and would like to add a specialty real estate professional, ask that advisor to point you in the right direction. Odds are that your advisor will be willing to help, just as a primary care doctor would recommend other doctors for their patients’ more specific needs. From there, you can be on your way to adding real estate investments to your portfolio in a way that’s comfortable for you.