Strategic Real Estate Investment Tips for Mid-Career Physicians: Building Stability and Legacy
This mid-career physician moved from Vancouver to a smaller city in BC after residency arguing that only someone of his father’s generation could sensibly afford real estate in Vancouver back in the seventies. His generation were better off in a much smaller place like Vernon in the 90s and he predicted that his children might be advised to pick a different province if they hoped to one day be homeowners. He was now close to paying off his mortgage and wanted to purchase more real estate as many believe it can be an easy road to financial success. I do not share this opinion as I did not experience constantly rising real estate values in small town eastern Canada. Even when living in the west, I always considered my home to be a place to live and raise a family and not as an investment. Finally, real estate is not highly liquid and can be sometimes very difficult to sell and thus frustrating and emotionally draining if you are in a hurry for some reason.
Having said all that, I have done fairly well with real estate despite my aversion to it as an investment so was prepared to review Ralph’s plan. With only a small remaining personal home mortgage and a steady secure income, the local bank considered Ralph to be very low risk. They were more than happy to advance him a loan for a 20% downpayment on a relatively new three-bedroom townhouse with the remaining purchase financed with an 80% mortgage.
We looked at the bank’s suggested life insurance plan to cover the mortgage and he elected to buy simple term life insurance elsewhere at a more favourable price. Prior to purchase, we calculated a reasonable rent taking advantage of the very low available stock and the high probability of finding reliable good tenants at a price point that would just cover Ralph’s mortgage, taxes and insurance. As a relatively new property, maintenance was not expected to be major issue, but he budgeted for at best a break-even position or more likely a small loss each year.
He took out a three-year term mortgage designed to renew about a month before the mortgage on his personal home. Both rose in value over the next three years, so Ralph was able to renew his 80% townhouse mortgage at a higher amount. The increased mortgage meant that the bank provided him with tax free cash which he was then able to use to reduce his home mortgage when that came due a month later. His accountant pointed out that the interest costs associated with this increased mortgage on his townhouse could not 100% be written off as a business expense if the capital was for personal uses in this case to reduce his home mortgage. However, Ralph was now looking for new investment opportunities as he teamed up with a local electrician who had close ties to other trades like plumbing and carpentry to handle any maintenance issues.
Ralph now loves his plan and with his partners has bought two other not-so-new townhouses which they can collectively manage. The goal is to cover costs with rental income and gradually improve these older properties with carefully managed cost of trades provided by interested parties. Upon renewal, the rising values allow the partners to keep the mortgages at 80% and extract tax free funds to purchase more properties and keep the virtuous cycle going. They are considered a positive local contribution as their properties are known to be safe, clean and reliable supplying much needed local accommodation.
KEY CONCEPTS:
Ralph’s plan works for him mostly because of rising real estate values.
If the market dips, someone like Ralph and his partners can be seriously squeezed, but so far, they have been careful to not become over-leveraged.
Handling the details of renting, maintenance, and a host of other issues makes real estate much more challenging than many expect, but I have to admit, he has assembled an excellent team and his results are very impressive.
I still prefer the simplicity and easy liquidity of stocks, but Ralph has done a good thing and it suits him much better than other options.
Real-Life Insights for Retired Physicians: Ralph's journey provides valuable insights into real estate investment strategies for mid-career physicians, especially those planning for retirement and legacy building. Here are some key takeaways:
Strategic Real Estate Investment Success: Ralph demonstrates how strategic property acquisitions and careful mortgage management can yield long-term financial benefits.
Property Management Tips for Mid-Career Physicians: Maintaining properties and managing rental income can contribute to financial stability and growth over time.
Risk Management in Real Estate: Balancing risks associated with market fluctuations and property maintenance is crucial for sustainable investment outcomes.
Legacy Building Through Real Estate: By strategically investing in real estate, physicians can build a strong financial legacy, ensuring stability for future generations.
Market Insights and Long-Term Planning: Ralph's approach underscores the importance of market knowledge and long-term planning in real estate investment success.
Mid-career physicians like Ralph can achieve remarkable financial stability and build a lasting legacy through strategic real estate investments. By leveraging secure income, managing risks, and maintaining properties effectively, physicians can optimize their portfolios for long-term growth. Ralph's journey highlights the importance of careful mortgage management, partnering with reliable tradesmen, and staying informed about market trends. By applying these strategic insights, physicians can enhance their financial security, ensuring a prosperous retirement and a robust legacy for future generations.