When looking at your finances, you realize that you have some extra money on hand. What a wonderful problem! However, it's a problem nonetheless, because you must decide how to spend it. Should you invest it in your dental practice? Or, would the money be better spent on new real estate investments? How do you balance your investments for the best outcomes?
Dentists have a lot to gain from investing in themselves. However, it’s also wise to make investments outside the practice to build your portfolio for retirement or simply to maximize your wealth. While there’s no one right way to invest, there are some considerations that can help ensure you’re making wise choices when spending:
Invest In Yourself First
Your own business is your primary income as a dentist. You have the potential to make a significant profit when you take care of your business. So, your practice should be your priority. If you’re still leasing, consider the many advantages that purchasing your own property might offer. Alternatively, invest in advertising, equipment and professional development for yourself. There’s no monetary limit on what you can spend, but you should be confident in the status of your practice and the income you can achieve through it.
Your Practice Property Is A Cost
Many dentists mistake the property where their practice is located as an investment. When you occupy the property, it’s a cost. Compare the cost to what you would pay to lease instead to see what the savings are. Eventually, when you retire, you can rent out your property to earn higher returns on the initial investment.
Protect Your Flexibility
Owning real estate properties allows you to earn passive income which may be useful for you in retirement. However, you should make sure that you have a diverse enough portfolio that you have more liquid funds available as you move into retirement. While real estate investments are wonderful, you can’t guarantee that a sale will go through quickly if you suddenly need a lot of cash all at once.
There are several options to help avoid this scenario. One option is to strategically sell off one or more of your real estate properties around the time of your retirement, provided that you have a selection to choose from. This way, you’ll have a good amount of money on-hand to enjoy while other properties continue to offer you rental income.
Alternatively, you can make sure that you put aside money for your retirement while also investing in real estate. You can make sure you do this by paying off your real estate debt slowly. This way you can take advantage of the tax benefits of owning property. Also, you'll be contributing to your retirement fund instead of diverting all of your income to paying the debt.
So, should your investments be worth more than your practice? It depends on the size of your practice. Your goals and your ability to acquire other investment properties while still making smart financial decisions. It also depends on the real estate market in your area and the availability of quality properties that it makes sense to invest in.
Any dentist serious about his or her success in the real estate market should consult with an experienced financial advisor and a real estate expert. This way, you can make the best, well-informed decisions about your future.
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More on Investing for Dentists
One of the best ways make extra income is investing in rental properties. Having long-term tenants means a continuous stream of passive income. Owning rental properties also means you can have as much or as little involvement as possible. If you’re considering long-term rentals, many people work with rental management companies which takes out the responsibility while you accumulate rental income. Read Why Dentists are Investing in Real Estate for Retirement