Many sacrifices come along with being a part of the medical profession. You likely had to sacrifice a substantial amount of time and money just to enter the field. Because of this, it can feel like you are getting a late start when it comes to planning for retirement.
With demanding work schedules and trying to maintain a work-life balance, it’s challenging to find the time to consider investing beyond your employer’s 401K or pension. But unlocking your full earning potential and building personal wealth to carry you through retirement requires diversifying your portfolio beyond traditional retirement savings. Two popular ways to do that are stock market and real estate investing.
This article discusses the pros and cons of investing in the stock market versus investing in multifamily real estate syndications. It also provides some background on what each type of investment entails and why multifamily is an excellent option for medical professionals.
Why You Must Invest Beyond Your Employer’s Retirement Plan
While 401Ks and other employer-matched retirement savings plans are great, the key to financial freedom is finding investment opportunities that maximize your returns. In other words, your money needs to work for you.
Many professionals invest in the stock market, which can be pretty stressful in an unsteady market, or they invest in single-family properties, which they rent long-term and eventually see a return down the road. The stock market can be stressful in the short term, but historically, it stays ahead of inflation, and you can sell it quickly. Buying real estate is a solid long-term investment that will provide an additional revenue stream on top of the asset’s appreciation over time. However, it can take time to sell, and there is the added stress of maintaining the property and keeping reliable tenants in place.
Multifamily syndications offer quicker returns than traditional real estate investing and more stability in a volatile market than investing in stocks. As a passive partner in a syndication, there is less time commitment and personal liability than that associated with individually investing in real estate.
Let’s look at some pros and cons of investing in the stock market compared to investing in a multifamily syndication.
The Pros and Cons of Investing in the Stock Market
Investing in the stock market means you are buying a small piece of a company through a share. As the company starts to grow, the value of your investment in it will grow. Historically, investing in stocks has delivered healthy returns to investors over time, but risks are still associated with it.
Pros:
- Easy to buy and sell
- Grows with the market
- Stay ahead of inflation
- Minimal overhead to invest
Cons:
- Takes time to research the market
- Can be turbulent
- If a company goes bankrupt, stockholders get paid last
- Must pay taxes on profitable stock sales and dividends
What is a Multifamily Syndication?
In a multifamily syndication, there are several key players involved. The main two you need to understand are the general partner (GP) and the limited partner (LP).
The GP, also known as the syndicator, oversees a multifamily project from start to finish. They interface with other important parties, such as real estate agents, lawyers, contractors, and property management companies, to ensure the project runs smoothly and that the LPs get the best return on their investment.
The LP serves a limited role in the project. Their contribution is to provide the capital needed to fund a project. This means they don’t have to worry about the day-to-day decision-making, but they see their ROI before the general partner sees a dime. Limited partners can fall under two categories: accredited and non-accredited.
An accredited lender must have an income of at least $200,000 (or $300,000 combined with a spouse) or a net worth of $1,000,000, excluding the value of their primary residence. These investors can get in on 506c offerings with investment firms provided they can obtain proof from a third party (accountant or lawyer) in writing and provide bank statements.
Non-accredited investors do not meet either requirement and can’t invest in 506c offerings. That doesn’t mean they are out of luck, though. 506b offerings are open to non-accredited investors so long as they can self-verify their ability to make sound investment decisions.
The Pros and Cons of Investing in a Multifamily Syndication
As with any investment, it is crucial to do your due diligence and thoroughly research your options before investing your money. While there can never be a guarantee as to the level of return you will see from an investment, multifamily opportunities have demonstrated their ability to weather economic uncertainty.
Pros:
- Passive investment
- Limited liability
- Access to real estate experts
- Access to larger property investments
- Tax advantages
Cons:
- Not a liquid asset
- Limited control
Why Multifamily Investments Are a Great Option for Physicians
Whether you are nearing retirement or years away, multifamily syndications are a fantastic option for busy medical professionals to diversify their portfolios. With passive investing, you won’t have to spend hours on top of your busy schedule trying to manage an investment property. You will also spare yourself having to watch the news on the stock market with bated breath. This doesn’t mean you shouldn’t invest in the stock market, but balancing your portfolio with “real” real estate investments and stocks will give you enough variety to reap the rewards and reduce your overall risk.
As we said at the beginning of this article, the key is to make your money start working for you. Building steady cash flow from passive income will help you grow your wealth exponentially and set you up for a comfortable retirement.
Want to learn more about diversifying your financial portfolio with multifamily real estate investing?
Timberview Capital offers valuable insights and practical tips on how to invest in multifamily properties regardless of your experience level. Contact us today to learn more!
