Is Real Estate The Best Way To Invest 100k For Doctors?
Is Real Estate The Best Way To Invest 100k For Doctors?
Most doctors and other high-earning professionals that reach out to me understand that I love investing in passive real estate. Once they join the Passive Investors Circle and start educating themselves on real estate, they’ll also learn that it usually takes a minimum of $50K to invest in most properties.
Early on I realized why the “rich get richer” as I NEVER was able to invest large sums of money in the past. These types of investments are hands-off and accessed only if you’re considered an accredited investor.
A new Passive Investors Circle member (neurosurgeon) recently asked, “Hey Jeff, what’s the best way to invest 100K? I’ve got some money sitting in a money market account earning next-to-nothing and want to start building up streams of passive income. Please help.”
Newbie Doctor Investor
One of the main concerns the newbie doctor has (myself included in the past), is where to invest that has the highest returns. If you’re right out of training then your focus should be on getting into the habit of saving money.
It doesn’t make sense to stress about returns because the amount of money available to invest during those early years is paltry.
What does it matter if you’re making 7% vs 10% on $5,000? It doesn’t. Instead of focusing so much on returns, new docs would be better served focusing on two other areas:
I first learned the concept of an emergency fund (AKA “rainy day fund“) from Dave Ramsey while completing training at LSU. This is an account that allows you to access money in case of an unplanned sudden need.
There’s much discussion about what type of account(s) this money should go into and again, folks are searching for the best returns.
This money should be treated as insurance against, you guessed it, emergencies.
Emergency funds are better served in accounts that are EASILY accessible such as checking or money market accounts.
We keep over a year’s worth of living expenses in the Vanguard Prime Money Market Account (VMMXX).
Dave Ramsey recommends saving 3-6 months worth of living expenses but I feel better going out to a year. To each his own.
Now let’s move on to debt…
Before you begin searching for the best way to invest 100K, consider cleaning up any consumer debt laying around.
Most doctors graduate with large amounts of student loan debt.
They tend to have other debt such as credit cards and vehicle loans too.
What’s the point in investing in an index fund earning 7-8% a year when you have credit card debt that charges 22% in interest? It’s hard to get ahead until you’re consumer debt free.
Now that we’ve got the emergency fund and debt covered, let’s move on to what you came here for, what to do with that $100,000 burning a hole in your pocket.
Best Way To Invest 100K
I hate to be the bearer of bad news but there’s actually MORE than one best way to invest 100K.
But what I am going to do for you is only highlight those options that I personally think are best and also invest in myself.
Nobody is paying me to give you these recommendations, it’s strictly my personal opinion only.
One other issue we need to address is what you plan on using this money for in the future. This is going to be a major determining factor of the type of investment to make.
For instance, if you’re trying to save up for a home down payment, then what you’re going to invest in is going to be different than someone that plans on funding college tuition for three kids (529 plan).
So here’s what we do…
Due to the fact that we’re like you (high-income earner in a top tax bracket), tax savings is high on our priority list.
Related article: 5 Smart Ways On How To Reduce Taxable Income For High Earners
Each month we max out our practice’s retirement accounts (via Vanguard) and also fully fund both of our kid’s 529 plans. In Louisiana, we’re allowed to deduct $4,800 a year per child against state income tax.
We invest in the Louisiana START Savings Program which allows us options to use Vanguard mutual funds. After they were born, we set up automatic monthly investments of $400/month to get the tax benefit + help fund college.
The cool thing about 529 plans is that if one of them gets a full or partial scholarship, then the balance in the account can be transferred either to the other sibling and/or to their future children (our grand kids 🙂 )
All of our investments are set up on auto draft so no need for a financial advisor.
We also have money coming out of our accounts on a weekly basis going into a separate money market along with our passive real estate distributions.
So if I had a lump sum of $100K, I’d be taking a portion of it and investing it following the monthly plan discussed above along with continued savings until we land on a new passive real estate deal.
This is where I want to share with you what I feel is some of the best ways to invest $100K.
Why is real estate my top choice for investing $100,000?
There’s more than one way to invest money in real estate so I’m going to answer this based on our situation.
For us, it only make sense to NOT become involved with active investing. Why? It doesn’t align with our goals. What? You don’t have any goals you’re following each month?
No worries. If you want to keep heading down the road you’re traveling with NO DESTINATION in site then continue without goals.
But if you’re like me and have a place you’re heading towards (financial independence), then goal setting will allow you to arrive there within 7-10 years no matter where you are in your career.
I have two simple goals:
- Free up more time for family, friends, travel, etc.
- Replace our personal expenses with passive income
That’s it. So when I originally wanted to start investing in real estate, reviewing the goals made it crystal clear that passive investing was the best as:
Goal #1 = make MORE free time.
See how easy that works? The goals you set will GUIDE your decisions. I’m just a regular dude from Louisiana and want to keep things simple.
Start with “why”
Here’s something else for you. The first question I ask all new Passive Investor Circle members is, “Why do you want to invest in real estate?”
I’d have to say that over 90% don’t have a “why” they want to invest in real estate and I encourage them to get one.
Having a “why” you want to do something will keep you focused on your goals when times get tough.
For instance, if you catch yourself wanting to buy a new truck (cybertruck?!), then your goals will redirect you to invest that money instead in assets that provide passive income. Dang it!! 🙂
For us, passive real estate is the best investment class that we’ve found (we have invested in stocks, bonds and index funds) to help us reach our goals of retiring earlier than 55.
The passive income that we’re currently receiving is NOT only tax-free but we’re also able to access/spend it if need be (which we don’t at this time).
There is no worrying about figuring out a way to access retirement accounts early. You have full access to this income NOW.
The Benefits Of Investing $100K In Real Estate
I love investing in real estate. Why? Well, instead of investing in an intangible asset such as stocks or bonds, investing in real estate allows you to invest in something that’s real (you can physically put your hands on it).
There are multiple benefits for real estate investing especially for high-income/highly-taxed doctors. Sound familiar? 🙁
The three main ones are:
#1 Cash Flow
If you ask Rich Dad Poor Dad author Robert Kiyosaki why he invests in real estate, then you’ll likely hear the term cash flow.
He claims that it’s one of the ways we can protect ourselves of the fear of running out of money during retirement.
Cash flow in simple terms is the “flow” of money into your bank account each time an investment sends you a distribution.
The formula it’s derived from rental properties are:
Net Operating Income (NOI) = Rents – expenses
Cash Flow = NOI – debt – long-term repairs
- Positive cash flow = a surplus
- Negative cash flow = a deficit
If you’re invested in an apartment syndication that collects $20,000 a month and expenses are $16,000, then your cash flow is $4,000 each month.
Related article: Cash Flow In Real Estate – The #1 Reason to Invest
The increase in value of an investment over a certain time period is known as appreciation. If you’ve ever sold a home then more than likely what you paid for it was less than what it was sold for.
This is an example of appreciation.
It’s an important variable which plays a key role in defining the profit from a property for a real estate investor.
Several of our syndication investments are in value-add properties. These assets are typically older buildings that are remodeled which helps increase the future value.
This is an example of forced appreciation.
Once improvements are completed, rents can be increased thus allowing the property to be sold at a higher price.
#3 Tax Benefits
I’d have to say that the main reason we currently invest in real estate are all of the AMAZING tax benefits we receive.
It’s been said that depreciation is one of the most powerful wealth building tools in real estate as it’s a way that the value of an asset can be written off over time.
Even though commercial real estate usually appreciates in value, the IRS allows you to depreciate its value called a paper or phantom loss.
They allow you to subtract the losses against the income which will REDUCE your tax burden.
To take depreciation a step further, the IRS allows you to front load or accelerate the depreciation. This can be accomplished via a cost segregation study.
You can also take advantage of a 1031 exchange which may allow you to defer taxes from any sale indefinitely.
If you’re tired of paying 40+% to Uncle Sam each year, consider real estate.
What’s The Best Way To Invest $100K In Real Estate?
If you’re looking for the best way to invest 100K then in my opinion, real estate is where it’s at. The cool thing about real estate is that you can be:
- completely hands on
- completely hands off
- somewhere in between
In other words, you can be active, passive or some where in the middle.
In past articles, we’ve touched on many different ways to invest in real estate such as:
If we hadn’t set up specific financial goals then choosing the best option wouldn’t be easy. Due to the fact that freeing up time is important to us, passive investing was our choice for the best way to invest 100K.
Specifically real estate syndication deals.
Conclusion: Deciding The Best Way To Invest $100k
Remember, the best way to invest 100K or any amount of money comes down to you and your own personal financial goals.
What’s right for me may not be right for you.
But from my personal experience, if you’re a high income earner that is over taxed looking for passive income to get off the treadmill early, passive real estate investing is your ticket out.
Are You Ready For A Golden Ticket?
If you’re ready for a golden ticket to get off the hamster wheel of practicing then join the Passive Investors Circle today.
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