Passive Money is What Doctors Need

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Doctors should have passive money. We work too hard and pay too much tax to not have passive money flowing into our lives.

Are you a passive income physician? What do I mean by that? Will a large part of your income continue to flow to you even if you stop working?

Passive Money & Active Money

If your passive income is near zero, keep reading. If your paycheck dwarfs your passive income, keep reading. You have work to do. A little bit of education and effort now will prime the pump. Once the cashflow is started, it will quench your thirst for years to come.

Doctors are finally starting to take charge of their financial lives. There is still much work to do. We need more role models in medicine. I’m not talking about mentors who can teach us how to examine a knee or scope a colon. 

We have plenty of doctors who are ready, willing, and able to teach such things. No, I mean the more practical and more important thing that doctors should learn about: money.

Doctors Need Money Knowhow

Doctors like to ignore the money issue. We don’t discuss it in medical school even though it is a large part of the reason we are studying medicine. Faculty don’t teach us about it. They may not even know much themselves. 

Our parents may have avoided that taboo subject too. Unfortunately, those who don’t understand money are not likely to manage it well. Doctors who are bad with money are bad with other things. Important things. That leads to frustration, burnout, exhaustion, marital stress, and even suicide. 

Build many streams of income. Become financially independent, preferably in your 40s. It opens an array of options such as early retirement, part-time work, and mission trips. 

Some Doctors Will Teach You About Money

So how is a doc to learn such things? There are a growing number of resources. My blog is one of them. I’m sifting through the good, bad, and ugly. My goal is to save you from spending hundreds of hours reading about personal finance.

Tom Black, MD is a kindred spirit of mine. He is an ER doctor in TX who invests, teaches, and writes. I recommend his book, The Passive Income Physician

Dr. Thomas Black, Napali Capital

[Tom is not Peter Kim of Passive Income MD. They are both great resources and unfortunately ended up with similar phrases.] 

Tom’s 150-page paperback book is a quick read. His book would be a good beginner read before jumping into bigger and more detailed books like Dr. Cory Fawcett’s Doctors Guide to Real Estate.

It is semi-autobiographical. His life’s journey is unique, but we can all learn from it. His book is hopeful, positive, and inspiring. You will get a sense of encouragement and financial advice. The best part is the painless learning process. Lessons come as stories from a successful friend. There is no arrogance or judgment, just shared learnings.

He also fills the book with tips on how to think about money. Since he is a physician, he understands the mindset that too many physicians have. You know it, well don’t you? 

Ditch The Doctor Money Mindset

That mindset says,

“I’m a doctor.”

“I make a very big income.”

“My job is secure.”

“I’m rich due to my high salary.”

Dr. Black counters with the facts about the best ways to calculate and increase your net worth.

Real Estate is Great for Passive Money

His favorite way to increase wealth is by owning apartment buildings. Initially, he bought rental houses. He then moved on to multifamily housing. 

Besides apartment buildings, he likes condo projects, industrial, storage, and hotels. [Disclosure – I have invested with his firm, Napali Capital. He is not an advertiser. I have no affiliate or other financial relationship with Dr. Black]

Become Financially Free with Passive Money

Passive income can decrease your dependence on clinical work hours. Clinical medicine is hard and stressful. Even for those of us who love it, it can wear you down after 10, 15, or 20 years of full-time work. 

Become independent due to your passive income streams. You will then have the option of cutting back or retiring early. Physician employment is reducing our autonomy. It is critical we take control of our financial wellbeing.

Dr. Black doesn’t overwhelm us with details of real estate investing. He explains the important big-picture concepts. He lays out the benefits of moderate leverage, low taxes, appreciation, and cash flow. 

Magnify Your Passive Money Gains

The author encourages us to think big. In commercial real estate, effects get magnified. Small changes in rent, cash flow, depreciation, or appreciation matter. He gave an example of increasing the rent $50 per unit that resulted in an increase forced appreciation of $1.8M.

N.B. Details for the Math Nerds among us. Other normal humans (if there are any reading my blog) can skip this section.

NOI = Net Operating Income. The Cap rate = Income / Asset Value.

Property Value = NOI / Capitalization Rate.

This example is a 300-unit apartment building providing a $100K income. A cap rate of 10% implies the property’s value is $1M. ($100K / 10% = $1M).

A $50 rent raise boosts the property’s income by $180K. ($50 x 300 units = $15,000 per month. $15K x 12 months = $180K). Now the improved income is $280K per year. (Prior $100K + $180K increase = $280K).

So what is the property’s value now? $2.8M. (NOI / Cap Rate = $280K / 10%). That upgrade of $50 per month “forced” an appreciation in property value of $1.8M. That is the power of scale offered by multifamily investments. 

How to Create Value

You won’t need to become a slumlord to raise rents $50.

Improve energy efficiency, renegotiate service contracts, or add amenities like covered parking. Boom. You’re there.

That should give you a taste of the potential benefits. The deals look sweeter after adding in other benefits of real estate. Things like cashflow, lower taxes, inflation-protection, and depreciation sweeten the deal.

Dr. Black explains why doctors should invest outside of medicine. He challenges us to face our fears and overcome them.

Mind Over Matter

Know there will always be naysayers and haters who will try to block you. They thrive discouraging you from building a better life for yourself. He helps prepare us for that inevitability.

He recommends we take the Passive Income Promise: 

“I will do everything in my power to be profitable, pay myself first, and expand my financial horizons. I will do this through investing, reducing taxes, and increasing my income streams).”

The good doctor filled his book with pithy nuggets of wisdom such as: 

“Your home is not an asset; it is a liability.” 

“Assets aren’t guaranteed to appreciate.” 

“You don’t get rich by selling real estate, you get rich by owning it.” 

Choose Your Investment Strategy Carefully

Doctors should not look to flip real estate. That plan of buying to fix up and sell isn’t best. We have little time and high incomes. That approach makes more sense for those with lots of time and lower incomes. Our high tax brackets work against us. 

In short, Tom Black’s book is an entertaining and informative read. I recommend it to physicians considering how to make money outside of medicine. This book will fill in your knowledge gaps and inspire you to take action. 

More important, you will learn positive ways of thinking about building net worth. 

What do you think? What percentage of your income is passive money? I’m boosting mine. How about you?

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    • FiPhysician,
      Thanks for the comment.
      I think!
      There is some truth in that actually. I’m the worst market timer in the world. I’m so consistently bad that I likely have a high counter-predictive value.
      I sold all of my gold and precious metals immediately before 9/11 when they shot up.
      I bought small-value stocks and real estate in 2007. Then I sold them in 2009. Timed to perfection.
      You might be onto something. Maybe I can make a profitable newsletter based on this.

      February 12, 2020
  1. Mike Drak said:

    I just sent your article to my son in Australia who just became a doctor. I spent 38 years in banking and I always considered professionals to be the worst investors around. Your articles will change this if they are willing to invest the time educating themselves.

    February 12, 2020
    • Thanks, Mike,
      Sharing my writing with your professional son is about the highest praise available.
      If even a few doctors start paying attention to taxes, investing, and passive income based on my writing I will consider all my work a success.

      February 12, 2020
  2. Xrayvsn said:

    I am a huge proponent of building passive income streams. Passive income streams often have much better tax treatment and in the case of real estate, depreciation can make early years of passive income tax free.

    My passive income stream is about 1/8 of my W2 income but for me it is already providing a level close to supporting my annual cost of living.

    February 12, 2020
    • Xrayvsn,
      I could easily live off my passive and portfolio income alone.
      I still do clinical work. I work A LOT harder for those dollars. And then a bigger chunk goes to my Uncle Sam. Not to mention being at the mercy of every payer or administrative policy changes that affect my wRVUs.

      February 12, 2020
  3. Since you don’t make money by selling real estate, only by owning it, the bubble is irrelevant. Bubbles hurt people who are selling. I buy and hold and cash the checks. I’ve bought property just before a bubble burst and it didn’t matter.
    Thanks for the book plug.
    Dr. Cory S. Fawcett

    February 13, 2020
    • You are welcome, Cory.

      Your real estate book is excellent.

      I think I mostly agree with your comment although I have made a lot of money selling real estate too. That’s when I cash in all of the appreciation.

      Cash flow and steady rents are key. But it would all be less appealing if there were no appreciation and equity growth. Leverage magnifies that appreciation benefit.

      I know you know this. I’m just clarifying for other readers.

      February 13, 2020
  4. Crispy Doc said:

    Well summarized, WD. I worry sometimes that, like waiting until the shoeshine guy is giving stock tips, I am arriving late to the game of real estate investing.

    At the same time, when I look at the areas where Tom’s syndicate is investing, it matches well with places I’d considered for out of state investments – which makes me feel that at least we are coming to the same conclusions.

    I enjoyed Cory’s book as well, and planting the seeds today to sow passive income tomorrow is not only a financial move; that sort of thinking investor’s chess is also a great second act to follow as one transitions out of medicine and needs to keep the little grey cells challenged.

    I’m enjoying using my brain in a different way to develop a new knowledge base. The books are fascinating, and the exercises in trying to properly value a potential investment come with a vocabulary as foreign as that first year of med school seemed those many years ago.

    Thanks for highlighting a very viable option for Act 2 in life.



    February 13, 2020
    • Thanks, Crispy Doc

      I know what you mean about the joy of learning something outside of medicine. It is an added bonus that this hobby can actually allow financial freedom.

      I’m not sure if I’m the shoeshine boy recommending real estate? FIPhysician implied that I might be.

      I don’t try to time it though. Every year provides a fresh new “reason” aka excuse for many of us to not take action building wealth. I have consistently invested in and benefited from real estate for nearly 25 years. There are ups and downs of sale price. But that has very little bearing on all the benefits such as equity growth, tax reduction, and cash flows.

      February 13, 2020
    • Tom said:

      So over a decade of investing and creating foundation I’ve finally lifted my head out of the sand! Have to say – I love all your sites. For the longest time my mission has been operative and financial performance. Very inspiring we are actually seeing awareness and thought change in our community. If we could only take back the autonomy we have lost from consolidation and PE. All the best to all of you and many happy blogs ahead. Keep on keeping on!!

      February 15, 2020
  5. WD, I agree that all docs should read this book. I recently completed it and it should help to open the reader’s eyes to the fact that if they go through their careers with ONLY one stream of income [active/earned], then there’s a high probability that they’ll ALWAYS trade time for $$.

    February 15, 2020
    • Thanks for your comment, DebtFreeDr.
      I agree. For those who just work as a doctor and get only a W-2 paycheck, this book will open their eyes.
      It isn’t the only way to learn. There are hundreds of books out there.
      But Tom’s book is short and reads like a novel. Yet it covers important big-picture concepts that will help you build passive income.

      February 15, 2020
  6. Tom Black said:

    Long time reader, first time poster! Love the dialog on here especially about a bubble Don’t sell that gold WD! Agree wholeheartedly we are at the top of the market. Not the time to be speculative or buying low quality assets for expected cap rate depression or appreciation in markets. That said new vintage assets in stable growing markets that have high yield with descent longterm leverage (~75% or less) are still a safe alternative with all the benefits that accompany RE. It’s all about the stable yield with low expense profiles for our portfolio right now. It certainly is a great time to exit on those properties that had great entry basis from several years ago! Lots of folks out there teaching RE. It’s time to be very prudent and hunker down until there is blood in the streets again- then the equity play is back for the picking if you choose.

    Love your blogs WD!


    February 15, 2020
    • Dr. Black,
      I agree. I was talking to a physician friend about real estate investing. He is reluctant now because prices are up and he fears a “cooling off.”

      Here was my response to him in a recent email:
      “A lot of people are concerned about a “cooling” in the real estate market or even a “pop” of a “bubble.”

      It certainly could happen. Nothing goes up forever.

      In real estate, you own tax benefits, cash flow (rents), and a physical asset. Traditionally those who get hurt the most with real estate declines are those who buy negative-cash flowing properties, highly leveraged, appreciation plays, or they buy in the hood.

      Those who expect a 5-7% return from a well-priced multifamily B class property in a strong submarket, and small loan-to-value financing, aren’t taking a lot of risk in my view.

      But I may be wrong. My crystal ball is cloudy. Actually there was a comment above from FiPhysician noting that if I’m recommending real estate, we must be at a market peak.

      The other aspect for me is what the heck else am I supposed to invest in? I don’t know of any other options that provide cash flow, appreciation, and tax benefits? Maybe oil development or something, but I don’t know enough about that.”

      February 19, 2020
  7. Jimmy said:

    Great post!

    I find a lot of similarities with the software field. We work hard, Earn high income, and have little free time. I got into that field after spending several years underwriting real estate loans for investors, so my perspective was a little different and more in line with what you’re preaching here. Excited to see new content!

    March 7, 2020

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