As a physician, you’ve chosen a noble profession.
After treating patients all day and spending time with family, it can be difficult to find time for much else, let alone search for and manage good investments.
While many physicians turn to the stock market and similar investments out of convenience, there are alternate assets that are just as simple to own. Single family rentals, for example, are an undervalued asset class that can provide you with strong returns to reach your investment goals.
The Benefits of Single Family Rentals
Single family rental properties have proven to continuously provide solid returns on investment, and are a great way to build a retirement nest egg and/or generate income when you hang up your stethoscope. It is the only asset class where you can do all of the following:
- Use leverage to increase your returns
- Generate monthly income without drawing down principal
- Build equity via appreciation and principal pay down
- Reap tax benefits
- Own a tangible asset
Historically, most have not taken advantage of single family rentals because this type of investment came with a unique set of challenges such as where to find good properties and how to manage them. HomeUnion® has overcome these challenges.
1. Identifying Your Investment Goals
The first step in investing is identifying your financial goals so that you can decide on the amount of leverage and the types of SFRs that match your desired outcome.
As a doctor, your financial goals may be centered around retirement, funding college/medical school for your children, or creating legacy investments that can continue to be profitable with minimal time invested.
Knowing your goals will greatly influence what market(s), neighborhoods and properties in which you choose to invest, as well as how you use or don’t use leverage.
Find a Good Investment Property
After you have identified your goals, the next step is to find a good investment property. This is just one of the many areas in which HomeUnion® has thoroughly done the research so that you, as an investor, can make well informed decisions.
We take a top-down approach that starts with identifying good markets, then locating good investment neighborhoods within those markets. Additionally, we determine which properties in those neighborhoods will provide you with your desired returns.
Identifying A Good Market
To identify a good market, a wide range of factors should be taken into consideration:
- Job growth
- Population growth
- Favorable rent-to-home value ratios
- Home value appreciation
- Number of industries in the economy
The markets you choose can vary greatly depending on your investment goals. For instance, if you’re looking to generate as much income as possible in the next few years, you won’t care as much about appreciation instead, you’ll want to invest in the markets that provide the highest cashflow. However, if you’re looking to maximize wealth over the long haul, you’ll want to invest in a high appreciation market where the rent income covers all expenses including your mortgage.
Identifying A Good Neighborhood
After identifying a good market, the next step is to evaluate the neighborhoods within that market. In general, you don’t want to invest in the high-end neighborhoods because the rent income won’t provide a high enough return on your investment. Nor do you want to invest in the lower end of the market because vacancy risks tend to be higher which interrupts your cash flow more often. Thus, when looking for good investment neighborhoods, it’s important to consider the following factors:
- Median income levels vs. average rent
- Proximity to jobs
- Quality of schools
- Available transportation
Identifying A Good Property
Lastly, you’ll need to select single family properties within strong neighborhoods. Narrowing down the search at this final level comes down to examining the numbers. The following questions should be considered about the investment property:
- Is the property rentable?
- Is the property structurally sound?
- What rehab costs will you incur?
- Does the mix of bedrooms and bathrooms fit the demographics of the neighborhood?
- What is the expected vacancy rate?
- Will the expected rent cover all costs?
- What is your total cost?
- Will the property provide you with the returns you need?
Knowing exactly what your short and long term returns will be is crucial to your success. This means calculating expenses and income so that you can accurately predict what your returns will be.
This can feel overwhelming, especially with your limited free time. While this data can be found around the internet, partnering with a company that has done the research, interpreted the data, and knows which neighborhoods are poised for growth can help you make fast, accurate, and informed investment decisions.
HomeUnion® has already taken care of the heavy lifting. We provide detailed financial analysis on every pre-vetted property in our database as well as a breakdown of all annual expenses and income. We’ll even show you what the projected returns could be 10 years from now.
2. Funding Your Investment
Once you’ve identified the right opportunity, you’ll need to fund your investment(s), and there are several different options to consider. Some investors prefer to use all cash, whereas others prefer to take advantage of leverage through financing. Ultimately, it comes down to which strategy makes the most sense to achieve your financial goals. For example, look at the figures for this property paid for using leverage versus paying in all cash.
As you can clearly see above, the leverage gained through financing can produce a much higher Total Annualized Return compared to paying all cash. In the above example, the Total Annualized Return for financing is 9.55% whereas cash only yielded 5.93%. Not only was financing able to increase returns compared to cash, the initial investment was significantly lower at $18,290 instead of the full amount of $69,250.
Paying with all cash does have its benefits. As seen in the above example, the amount of net income from an all-cash purchased property is significantly higher at $40,106 compared to $17,579 from a financed property.
3. Watch Your Investment Grow, Hands-Free
Since time is at a premium for most physicians like you, we understand that you don’t have the time nor the desire to market the property when vacant, collect rents, or fix the garbage disposal when it breaks.
HomeUnion® offers end-to-end asset management services so that you don’t have to worry about any of the day-to-day management of your investment property.
Achieving Your Financial Goals Through SFRs
Owning single family income properties can be a great way for physicians like you to easily diversify from the stock market, generate income, and build wealth to meet your financial goals. Property ownership has numerous benefits including tax advantages, cash flow, and the ability to use other people’s money to build your retirement fund.
Don’t miss out on the opportunity to take advantage of this undervalued asset class. For the doctor with a busy schedule, this is one of the easiest ways to see a high return on your investment.
HomeUnion® is changing the way doctors like you invest in real estate by providing end-to-end investment services for single family rentals. Not only will we help you find properties that are inline with your financial goals, we will also provide asset management and take care of all the steps in between.
Want to learn more about HomeUnion® and the process of investing in single family rental properties? We would like to schedule a quick 15-minute consultation to go over your financial goals, and show you some of our pre-vetted income properties, as well as financial calculations and ROIs.