By: Arturo Bonilla, M.D.
I always knew that real estate was a great investment, but if you are anything like me, I was always too afraid to take that risk without the proper knowledge base. Fast forward many years and now I have understood why this was such a great investment. I have invested in many commercial apartment deals and have multiple streams of passive income, so I wanted to share with my fellow colleagues how this works.
Doctors Benefit From Commercial Multifamily Real Estate Via 4 Pathways:
1) CASH FLOW
Our acquisition strategy at Surgical Multifamily Investments is to pursue and acquire assets that are “ALREADY” income-producing, NOT speculative properties. We’re making them even better. As we research many, many, many properties that meet our strict criteria, we underwrite them to benefit you so that you can have cash flow. These planned quarterly distributions are essentially money in your pocket that you can use as you wish, and the best thing about it, tax-free for that particular year because of depreciation write-offs. The more distributions that you receive, the less risk exposure you have because you are getting your initial investment back. Reinvesting this cashflow into the next acquisition essentially tax-free or tax-deferred is the quickest way to achieve financial independence.
It is important to distinguish the difference between residential real estate and commercial multifamily real estate. In residential real estate, a property should appreciate over time. But if you think about it, how long would you have to hold on to your property before it appreciates enough to make it worthwhile…10, 15, 20 years? It depends on the comparisons around the neighborhood.
Commercial multifamily real estate is a totally different bird! Here, we force the appreciation by increasing the net operating income (NOI) via increasing rents and decreasing operational expenses. The formula for increasing our value says it all:
NOI goes up as rents are increased and operational expenses are decreased.
Value = Net Operating Income/Cap Rate
By increasing the NOI assuming the cap rates remain the same, the value of the property increases. This can be done in just a few years instead of 10, 15, 20…relatively independent of neighborhood comparisons.
Wouldn’t it be great to have the ability to refinance in just a few years and get a fair amount of our initial investment back, still own the property and receive distributions and use the refinance proceeds for another apartment investment? It doesn’t get better than that!
3) PRINCIPAL PAY DOWN (TENANT PAYS DOWN THE MORTGAGE!)
This title says it all. Our renters pay down our mortgage, plain and simple. Depending on the property size, the mortgage could get paid down $100,000+ yearly. Having the renters pay down 3-4% of the mortgage per year is an easy way to benefit from appreciation!
4) TAX BENEFITS
Commercial multifamily real estate is one of the most (if not the most) tax-advantaged investment out there. Depreciation has been the gift that keeps on giving! This allows us to receive our distributions and not pay taxes on them while we are alive. There are ways to defer these tax obligations and as we pass these to our children, that tax obligation could be $0.
What if we refinance? We can get a good chunk of our initial investment back tax-free or deferred and put that money into our next investment AND still own the property while receiving our distributions.
What if we sell? We could perform a 1031 exchange where we use all of the profit to purchase an equal or larger property and guess what…tax-free! Now we have a bigger property, larger distributions, etc. We can keep doing this over and over again. This is why 90% of the world’s wealthiest people own commercial real estate and it doesn’t hurt that our sitting president is a “real estate guy”! I don’t think he will approve of anything that will hurt the real estate world.
THIS IS WHERE WE CAN ACCOMPLISH DOUBLE-DIGIT TOTAL RETURNS YEAR-AFTER-YEAR. There is nothing out there that can match this investment class.
It’s time to stop swinging for the fences searching for that grand slam. Commercial Multifamily Real Estate is a historically proven asset class that can grow our wealth while we do what we love to do in our lives. To learn more about this amazing asset class and become our partner, please watch our “Introduction to Multifamily Investing For Doctors” webinar. We will be having our next large investor meeting soon. Don’t miss out on our next acquisition. Feel free to call us for details at 210.696.RENT.