I did a guest post for the popular website White Coat Investor in March. In that post, I told my story and how commercial multifamily real estate took me from a full time ER doctor who was overworked and burned out to a part-time doctor practicing on my own terms and set to retire well before I hit the age of 50. Here is an excerpt from that article.
I’ve worked as an Emergency Medicine Physician for over a decade now. Most of that time, I’ve also been investing in real estate. Real estate has been good to me and I’ve been asked to share my story and strategy with the White Coat Investor community.
I finished Residency in 2002 and started my career as an Emergency Medicine Physician. Chronic understaffing, increased regulation, and the rigors of shiftwork caught up to me and eventually led to burnout. I began to see earned-income as a trap in which you trade your time for heavily taxed income. I knew I had to get out, but my options were limited – there is no insurance for burnout.
COMMERCIAL REAL ESTATE
I had been investing for years in residential real estate (primarily four-plexes) and was on the long, hard path to financial freedom. Since there are no economies of scale in residential real estate, the cash-flow was small and unpredictable. The rents from my properties would eventually replace my income as a physician, however, that wasn’t going to happen until the 30 year notes were paid off. In the meantime, I had managed to create a second job for myself managing the properties.
I wasn’t willing to wait 30 years and my second job as a property manager was contributing to my burnout. That is when I began to look into commercial real estate. I had four goals in mind:
- Capital Preservation
- Multisource Income
- Minimizing Taxes
- Use of Wealth Accelerators
MULTIFAMILY COMMERCIAL INVESTING
I ultimately landed on multifamily commercial investing. It was a natural fit for me, as I was already investing in and managing smaller apartments. Shelter is a basic need and people will give up their luxuries long before they give up the roof over their head.
I just needed to go bigger!
Properties with 100 – 250 units and larger had economies of scale that were not available to me with four-plexes. While I was the only investor with my residential properties, with commercial multifamily investments I could join like-minded investors to invest in these multimillion dollar properties as a fractional, passive owner.
While all investments have risk, the safety profile of commercial multifamily impressed me:
- Ability to choose the best markets and submarkets to invest in
- Extremely low foreclosure rate for Fannie and Freddie underwritten properties (1% – 2%)
- Bulk Buying
- Use of Non-Recourse Lending
- Ability to insure against loss
- Incremental return of initial capital investment through monthly or quarterly distributions
- Use of Sole Purpose Entity Structures like LLC’s for Asset Protection
MULTIFAMILY INVESTING = MULTISOURCE INCOME
The commercial multifamily investor can experience financial gain from three different sources: Cash-flow, Principal Pay-down, and Appreciation.
There is a fourth source of income if you count the reduction and or elimination of taxes, but more on that in the next section.
Over the past several years, I invested in multiple large multifamily properties as a fractional investor. Each property has its nuances, but they have all returned positive cash-flow regularly. When I factor in the principal pay-down from the tenants and appreciation that comes with increases in net-operating income (NOI), I am obtaining double digit returns on investment (ROI) on each property.
The apartments are managed on a daily basis by professional property managers. No more tenant headaches, and the scale of the investments have kept my returns consistent. I am now able to work part-time in medicine and am on track to reach my goal of retiring before I turn 50 utilizing these passive streams of income.
– See more at: White Coat Investor