How Doctors Should Be Like Real Estate Investors
Last time, we talked about the similarities and differences of doctors and investors. Today, we will talk about how to bridge the gap, so you can take the best parts of both and prepare for your future.
You love your career. Unfortunately, you won’t be able to do what you love forever. Whether you are a physician, attorney, CEO, or other high-performer, at a certain point you’ll have to step down. All that income will suddenly stop and you’ll be in for a rude awakening. That alone should make you read this very carefully.
The 401(k) Myth
Your 401(k) will not make you retire the way you are accustomed to live. The 401(k) is there to protect the government from droves of retirees who didn’t (or couldn’t) plan their retirement and suddenly have nothing. Social Security does not pay enough to get by, and pensions are becoming extinct, so they shifted the onus onto the worker and incentivized his investment in the stock market. Thus, they buoyed the large companies while giving blue-collar workers a sense of financial security (if they bother to take advantage of it).
But, the benefit of the 401(k) decreases significantly as you have more income. The pre-tax benefit is limited to a certain amount. This year it’s just $24,500. For those of us with large incomes, that’s a very small tax benefit (although the best benefit dollar-for-dollar offered). For blue-collar workers, they rarely have the income to put aside the whole amount. It’s a myth. Don’t fall into the trap.
You Need to Invest More
Investing is the best way to prepare for retirement. That seems a given. Once you’ve made it to this mindset, a world opens up to you. Sure, max the 401(k), then buy yourself an apartment building, or invest in someone else’s project.
Look at your planning as a value-add investment. You are paying money now and doing work so that it’s better in the future. It might be painful to forego the sports car and boat right now, but you’ll be able to have those when you actually have the time to enjoy them.
How to Invest
As I said above, you can go out and buy an apartment building and do well. I suspect that you are happy doing what you do, so a better route would be to work with someone who has experience and time to do the work, but needs money. Money you have. You can be the silent partner in a project without doing the work, but reap the benefits. Sure, there is risk, but there are vast rewards.
The first thing to do is to read about real estate. Learn so you have a basic understanding. A good place to start is The Millionaire Real Estate Investor by Keller and Papasan. It teaches the basics of underwriting deals.
The next thing to do is to meet with other investors. Go to real estate meetups in your area. Finding them is as easy as doing an internet search or checking real estate forums. Have coffee with some investors and discuss your goals. It’s pretty easy to meet investors looking for equity (your cash). Having the basic knowledge helps you select the right one.
Take the Plunge
Make your first real investment. Start small and don’t be in a hurry. This is a get rich slow game. You don’t want to be making a lot of money now. You want to build equity so that you have that for your retirement. Set up your investments so you are not taking money out right now – you’ll just pay high taxes on it now. Believe me, the best time is now.
