Defusing The Myths About Investing In Medical Office Real Estate
It is always amazing to me how many physicians do not buy their own real estate in the first couple of years of practice. I have heard physicians say it is too expensive, they just want to rent, they are too busy to look into the area or they do not know much about real estate. Working too hard and not having enough time to research this area are poor excuses.
Real estate is the number one long-term, wealth-building vehicle available to all physicians. Look around at your most growing areas. New medical office buildings and projects are sprouting up everywhere. How many developers have approached you and asked if you would like to rent in their new medical office building? They say they will give you three months of free rent and pay for most of your tenant improvements if you sign a five-or 10-year lease. The reality is they are financing most of your build-out upfront but you are paying it back to them through your lease. What are you truly getting out of this deal? Who is really winning here? It is not you.
Why do you want to pay someone else’s mortgage? Why do you want to make other people rich? Once you commit to a five- or 10-year lease in that new medical building that you do not own, you have just made someone else very wealthy. I am shocked at how many physicians around the country do not own a percentage or all of their own medical office.
As a physician, you must take control of your financial destiny. One way to get started is to look at the medical office building where you practice. Indeed, you should view your practice as a source for wealth creation. In certain respects, this requires a paradigm shift in the way one looks at investing and accumulating wealth. I believe many physicians just want to go to work, treat patients and get home at a reasonable hour. However, how would you like to use your practice to create wealth that can improve your personal and family life on many levels?
Over the years, I have heard a variety of misconceptions from colleagues about why they do not invest in real estate. Accordingly, let us dispel some of the common myths about real estate investing.
Understanding The Value Of A Long-Term Approach To Investing
• Myth one: Real estate is too expensive to invest in today. This is one of the biggest misconceptions. I do feel land prices around some hospital areas may have appreciated greatly due to hospitals overpaying for real estate as a way to control the market. Ultimately, hospitals want to control the doctors and try to commit them legally to their facility. One way is by forcing physicians to rent from buildings that hospitals control. That makes sense if you are the owner or administrator of a hospital but it does not make much financial sense to the physician. In fact, some hospitals are selling real estate back to physicians.
How many times have you said: “If I bought that building or property 10 years ago, imagine how much I would be ahead financially right now?” The truth is that you would have said that 10 years ago and most likely you will say that 10 years from now. Money is relative and making money in real estate usually occurs when you buy or develop a piece of property. If you pay too much, you might get a lower return on your investment in the future and visa versa. It is true that some properties are expensive and overpriced but there are a lot of good opportunities all over the country for physicians to develop and purchase their own real estate.
• Myth two: I do not have the money to invest in real estate. One of my first investments was the development of a 9,500-square-foot medical office building. My total cash investment on this project was $200,000 and the rest was financed through bank debt of $1.4 million with a total cost of $1.6 million. This was in 2001. In 2007, the building was appraised at $2.9 million and the investors were able to refinance this building and put $1 million in their pockets. Not bad for a $200,000 investment. In addition, the building still has $1 million in equity.
I have invested in many partnerships that own about 14 commercial real estate properties around Atlanta and have found very creative ways to finance the cash portion needed for these projects. There is a lot of money out there for doctors who want to own their own real estate. There are many vehicles and partnerships to invest in and by signing a 10-year lease, you have a lot to offer an investment group. You do not need a lot of money to own real estate in the medical arena. A good credit score, a successful practice and a solid reputation in the community are the right ingredients for any institution to want to finance your investing activities in real estate.
Navigating Risk And Potential Reward
• Myth three: Real estate is too risky. I truly think this is a generational problem. My father used to tell me all the time to be careful since real estate is too risky. My father never invested in real estate and was misinformed in this area of investing. I always noticed that the wealthiest people with the most free time seemed to be real estate investors.
If real estate is so risky, why are banks willing to give you 80 to 100 percent of a building’s value to buy or build your own medical office building or invest in other real estate deals? Would they give you 80 percent of the value of a stock for you to buy into the stock market?
Banks inherently understand the value of real estate and are willing to lend for you to buy your own building. They know that as physicians, we work hard, rarely ever go out of business and do not like to move our location once we are established in the community.
Emphasizing The Value Of Good Debt
• Myth four: I do not want to be bogged down in debt. There is good debt and there is bad debt. Good debt is used to accrue assets that generate income, appreciate in value and provide passive income. Bad debt is tied up in assets that do not generate income and depreciate in value over time.
Physicians are notorious at spending their earned income on vacations, cars, big houses and expensive dinners. At the end of the day when you look at their balance sheets, they have poorly producing assets and a lot of liabilities. It is amazing how smart we are as doctors and yet most of us have been poorly trained at money management and investing. Without debt, it is physically impossible to create true wealth in a reasonable time period. Remember the term OPM (other people’s money). This is the real secret that makes most investors very wealthy.
Interest rates are very favorable now and this makes real estate investing for your practice quite affordable and practical. Granted, there are some parts of the country, such as Manhattan and Los Angeles, where it is very difficult to invest. However, this is not the case for the majority of us. Investing in real estate early in your career is key to your future wealth. Do not delay and wait until you have paid someone else’s mortgage for 20 years before making a move. You could conceivably pay off your building in 20 years.
Physicians spend the majority of their time treating patients, doing surgery and going to hospitals. This is great and part of our job but at the end of the day, the secret to long-term security for you and your family is building appreciable assets. Real estate investing should be your number one priority in this regard. There are so many available resources via books, brokers, mentors, seminars and other physicians.
What we do not learn in school we must learn after school. Educating yourself in the real estate arena can be one of your most valuable postgraduate educations. If you do not have time, work with someone you trust to help you develop your real estate portfolio. You would be surprised at how many of your colleagues are actively engaged or interested in real estate investing.
Dr. Helfman is the CEO and founder of the Village Podiatry Group in the Atlanta, Ga. area. He is also the founder of three physician-owned surgery centers and has developed ancillary models focusing on practice-owned MRI units and practice-owned pathology labs.