PHYSICIAN RETIREES: Home Ownership V. Home Renting

Posted on April 12, 2025 by Dr. David Edward Marcinko MBA MEd CMP™

THE “FIVE-FIVE” FINANCIAL RULE

By Staff Reporters

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Many of the pros of home ownership will appeal to medical retirees for whom their home is their castle and who appreciate being settled both financially and geographically:

  • 1. Building equity in your home: Each mortgage payment you make brings you closer to owning your house free and clear with no payments. If you can buy a new home or condo outright by selling your current home, you can still build equity in your new home over time.
  • 2. Predictability: If you have a fixed-rate mortgage, your mortgage payments will remain consistent for years and you don’t have to worry about a landlord ever making you move.
  • 3. Tax benefits: You can deduct mortgage interest and property taxes up to certain limits.
  • 4. Customization: You don’t need a landlord’s permission to alter and improve your home.
  • 5. Home appreciation: Homes generally increase in value, so you can increase your net worth by owning a property.

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Renting also has five significant upsides, particularly for physician retirees who want greater freedom to travel and to make bigger moves — potentially across the country or even abroad:

  • 1. Extreme flexibility: You can leave your property after giving notice and go wherever you want much more easily than with an illiquid home you’d have to sell first.
  • 2. Lower upfront costs: You only have to pay first and last month’s rent and a security deposit to move into a rental, not make a large home down payment.
  • 3. No maintenance concerns: If something breaks, your landlord is responsible for the cost of fixing it and the actual repairs. You don’t have to build up an emergency fund for maintenance.
  • 4. Predictable expenses: For the duration of your lease, your monthly housing costs including utilities will remain consistent, even if the cost of energy goes up, for example.
  • 5. Lack of worry: If you’re in a rental apartment, you won’t have to concern yourself with shoveling snow, mowing grass or other matters of upkeep.

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BUYING: Home Economics

Posted on January 21, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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A report released last month by the National Association of Realtors (NAR) confirms what many Americans suspect: home affordability is down. Due to rising interest rates and low inventory, NAR found that the average income of a home buyer between July 2022 and June 2023 was $107,000, up from $88,000 the year prior—one of the highest levels since NAR started tracking in 1981.

But the housing market continues to churn. The organization found…

  • More and more home buyers are single women. The share of single women buying homes is almost double that of men. They’re also slightly older—a single woman buying her first home is 38 on average, while a single man is 33 years old.
  • Buyers are older. The average first-time home buyer is 35, up from 29 in the 1980s, but it’s older people who are buying up the three-bedrooms after selling their starter homes: NAR found that the median age of a repeat home buyer last year was 58. In 1981, it was 36 years old.

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UPDATE: The Housing and Single Family Rental Markets

Posted on March 21, 2022 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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HOMES: Last year was a really good time to own a home—like, historically good. For the first time on record, homeowners earned more from the increase in home values than income from their jobs, according to Zillow. The numbers: The typical US home increased $52,667 in value, while the median full-time worker earned about $50,000 before taxes.

Rentals: Single-family rental prices jumped 12.6% from a year earlier, according to the latest CoreLogic Single-Family Rent Index. All major metropolitan areas saw increases, but the Sun Belt experienced by far the biggest gains, with Miami’s asking rents up almost 39%.

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Physician’s Acquiring Real-Estate

Posted on April 3, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

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Innovative Funding in Difficult Times

[Staff Reporters]mortgaged-house

Real estate can be acquired by physician-investors, even in these difficult times, in many different ways. For example, through direct purchase, participation in a real estate partnership vehicle with other investors [such as general partnerships, limited partnerships, various corporate entities, and, in most states, limited liability companies (LLCs), and investments in real estate securities such as Real Estate Investment Trusts (REITs).

Section 1031

Real estate also can be acquired through tax-deferred exchanges under Section 1031 of the IRS Code, in which a client “trades” one investment property for another, deferring the taxes due on the sale of the exchanged property. This allows the doctor to reinvest “pre-tax” dollars in another real estate investment, potentially benefiting from appreciation on the larger investment. The physician may also exchange one larger property into two or several smaller properties and pay tax consequences on each one as those properties are sold as cash is needed.

Tax and Risk Management

The way a physician takes ownership of real estate will affect the tax treatment of income and profit. For example, having an LLC-owned investment property will provide him/her with the same protection from individual liability as a corporation, while allowing him/her to have much more favorable tax treatment. Real estate can be bought directly by purchasing it in the following manners:

1. Paying cash,

2. Paying a cash down payment and acquiring a loan,

3. Paying cash to the seller who is financing, or

4. Financing the purchase by using either new real estate financing, seller financing, or credit borrowing when a lender is willing to loan solely on the strength of, and the financial statement of, the borrower, or a combination of these.

Trading and Secured Loans

Real estate also can be acquired by trading other valuable assets, sometimes in combination with financing. A client can obtain interests in real estate by making loans on real estate assets that are secured by a deed of trust or a mortgage. Another method is to invest as a participating lender. In such an instance the borrower needs to agree to provide equity kickers or participation in cash flow whereby the lender (doctor) can benefit directly from the real estate performance.fp-book21

Equity Participation Plans

With an equity participation, the physician-investor can profit or gain from the sale of the property, sometimes in a preferential manner (i.e., the money the doctor loaned is returned, with interest, and a predetermined percentage or portion of the gain is given to the owner/borrower before distribution of the sales proceeds). Similarly, the doctor can participate in annual cash flow, giving a fixed or a fluctuating amount depending on the performance of the investment. As a lender, many of the benefits of ownership of real estate are not available to the MD, but the doctor should have a security interest in the property and no direct responsibility for operation of the real estate investment. Also, if possible, the borrower should provide additional guarantees of performance. The borrower could do this by providing additional security, such as the deeds of trust on the borrower’s house, other real-estate, and the acquired property; bank letters of credit; or guarantees of performance from people other than the party to whom the money is originally loaned.archway

Assessment

If a physician-investor is considering acquiring or lending on real estate, s/he should check with his professional advisors, including accountants and attorneys, before proceeding. The doctor’s attorney should review any contracts or agreements before the client signs anything. The physician also will need a due diligence review to ascertain both the relative values of the real estate on which money is being loaned and the borrower’s track record and background.

Conclusion

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