- Passive Money & Active Money
- Doctors Need Money Knowhow
- Some Doctors Will Teach You About Money
- Ditch The Doctor Money Mindset
- Real Estate is Great for Passive Money
- Become Financially Free with Passive Money
- Magnify Your Passive Money Gains
- How to Create Value
- Mind Over Matter
- Choose Your Investment Strategy Carefully
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.
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?