Doctors and Physicians have a unique challenge when it comes to managing their finances. On the whole, they are high earners – with a median salary of $237,000 annually (more for specialties). But, they also have extraordinarily demanding jobs – working 51 hours per week on average. In short, they are highly compensated, but don’t have a large amount of time to think about or manage their personal finances. For this reason, they often like to pursue investments that produce passive income.
In this article, we are going to present ten ideas for physicians who are looking to earn passive income. We will describe what they are, how they produce passive income and the risks and benefits of allocating capital to each. By the end, the goal is for physician readers to identify one or two investments that may be a suitable fit for their own portfolio.
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What is Passive Income?
Before discussing our passive income ideas in detail, it makes sense to first define exactly what passive income is and why it is so desirable.
Passive income is income that is earned or received without having to do anything to get it. For example, interest paid on a savings account is passive income.
Clearly, passive income is desirable because it allows individuals to double or triple (or more) their income streams. For example, in the case of a doctor, they could be earning their normal high salary while at work and interest and dividends on their investments while at home.
Considerations Before Investing
Before allocating capital to an investment that produces passive income, there are a number of factors that physicians should consider:
- Debt Levels: Medical school is extraordinarily expensive. It isn’t unheard of for doctors to graduate with student loan balances that reach well into the six-figures. As a general rule, it is a best practice to concentrate on reducing debt prior to allocating capital to passive income producing investments.
- Emergency Funds: Once debt is paid off, it is next a good idea for physicians to save enough money to pay for three to six months worth of living expenses in case of an emergency – like a job loss or accident.
- Risk Tolerance: Some investments have more risk than others. Physician investors must decide what level they are comfortable with and look for investments that are commensurate with that risk level.
- Time Horizon: As a general rule, the most income can be earned over the long term. But, not all investors want to have their funds locked up for an extended period of time. So, physician investors must decide what time horizon they are comfortable committing their funds for.
- Capital Available To Invest: Some investments can be acquired for $100 or less. Others require a minimum investment of $25,000 or more. So, doctors must determine how much capital they are comfortable investing and look for opportunities that meet that criteria.
All of the investments in the list below are viable methods of earning passive income. But, doctor investors must consider the factors above and choose the option(s) that are most suitable for their individual financial circumstances.
Idea #1: Private Equity Real Estate
Real estate in general is a classic way to create passive income streams. But, it also requires a significant commitment of time and resources to manage. When a doctor partners with a private equity firm to make a real estate investment, the firm does all of the hard work of finding, underwriting, financing, and managing a commercial property while the investor (the doctor) provides capital and earns passive income in the form of regular distributions.
For doctors, the benefit of this approach is that they get all of the perks of real estate ownership without actually having to manage it. In other words, they get periodic cash flow without having to manage a property. This is passive income in the truest sense.
The potential downsides to a private equity real estate investment include long holding periods, illiquidity, and fees that are higher than other options like dividend stocks or mutual funds. For this reason, private equity real estate deals tend to be most suitable for investors with significant capital to invest and a lengthy time horizon.
Idea #2: High Yield Savings Accounts
A high yield savings account is one that pays an interest rate that is higher than the market standard. With it, investors earn passive income from interest paid, usually monthly.
The benefits of a high yield savings account include liquidity and FDIC insurance up to a certain balance.
The potential downside of a high yield savings account is that the interest rate, while high relative to the market, is not likely to allow a doctor to achieve financial independence. Interest payments are nominal and typically account for a 1% – 2% return annually.
Idea #3: Real Estate Investment Trusts (REITs)
Real estate investment trusts – REITs – are companies that own, operate, or finance commercial real estate. Often, they specialize in specific types of real estate, like office, healthcare, or multifamily, so investors have the chance to allocate capital to the sector(s) they like the most.
REITs benefit from a special tax advantaged structure as long as they pay out a high percentage of their earnings in the form of dividends – this is why they are a good way to produce passive income.
The major benefit of investing in a publicly traded REIT is its liquidity, low minimum investment, low fees, and the aforementioned tax advantages.
The downside of a REIT investment is that investors have no say in which properties their capital is used to purchase. In addition, share prices can be impacted by broader market trends that have nothing to do with the health of the underlying real estate.
Idea #4: Certificates of Deposit
A certificate of deposit – CD – is a financial instrument offered by retail banks that allow investors to earn passive income as long as they agree to lock up their capital for a certain period of time. CDs come with different maturities ranging from 30 days to 5 years or longer so there should be an option that meets every investor’s needs.
The benefit of a CD is that they are very safe and investors are unlikely to suffer from a loss of principal in the transaction.
The downside is that they are not liquid and there can be high penalties for withdrawing funds early. In addition, the rate of interest paid is relatively low, 1% – 3%, when compared with other options on this list.
Idea #5: Real Estate Crowdfunding
A real estate crowdfunding investment is similar to the private equity option in the sense that money is pooled by a deal leader to be deployed into commercial assets. However, real estate crowdfunding is usually for one specific property, not a fund. Again, investors earn passive income through periodic distributions and from a gain on sale at the end of the holding period.
The benefit of a crowdfunded approach is that investors get to choose exactly which properties they want to invest in and they gain fractional ownership of institutional quality assets.
The downside of a crowdfunded approach is that can come with high fees, long holding periods, and are typically facilitated by a technology platform that may or may not strongly vet their offerings.
Idea #6: Peer to Peer Lending
Peer to peer lending allows doctors to lend money to those who need it. This type of lending is enabled by technology platforms like who allow many investors to each contribute some small amount of the total needed by the borrower. For example, assume a borrower needed $25,000 to consolidate their credit card debt. In a peer to peer lending scenario, the technology platform may find 25 people who are each willing to lend $1,000 and “club” them together to make the loan.
This type of investment earns passive income because each lender gets their share of the principal and interest payment each month.
The benefit of this approach is that lenders can earn a high yield, can get into a deal for a relatively small amount, and receive monthly payouts when the loan payment is made.
The downside is that these loans are often unsecured, meaning there may be no recourse to the borrower in the event of a default. In addition, it is usually higher risk borrowers who come to peer to peer lenders so the chance of default may be slightly elevated from a typical business loan.
Idea #7: Dividend Stocks
When a company is young and growing, they typically reinvest all profits back into the company to continue along their growth trajectory. But, as they mature, they may decide to use at least some of this cash to pay dividends to investors. For example, Walgreens stock has an annual dividend yield of 4%, which provides healthcare professionals with passive income through quarterly dividend payments.
The advantage of investing in dividend stocks is that they produce income and have a chance for capital gains over time, increasing the total return. In addition, they can be bought and sold easily by those with a brokerage account, have low transaction fees, and high levels of liquidity.
The downside of dividend stocks is that their price movements can be subject to volatile changes based on overall stock market sentiment. In addition, if the company runs into trouble, they may have to cut or eliminate dividends which can really impact its share price.
Idea #8: Bonds
Bonds are debt instruments issued by corporations and governments to fund projects. For example a local government could issue bonds to finance the construction of a new water treatment plant. Or, a corporation could issue bonds to fund the construction of a new factory.
Bonds produce passive income for their investors through regular “coupon” payments of interest and a return of principal at maturity.
The benefit of a bond investment is that they are relatively safe, especially those offered by governments, and they can be bought and sold with relative ease.
The downside of a bond investment is that the interest rate paid can be relatively low and all investors are exposed to the risk that the bond issuer can default on their payments.
Idea #9: Books & Courses
Doctors and healthcare professionals are experts in their field. If they are also entrepreneurs, they could choose to write a book or develop an online course to sell to those who may want to gain the same knowledge. Of course, these options are a source of passive income because learners will pay for the privilege of taking the course or reading the book.
This is not an investment in the traditional sense, but books and courses require an upfront investment of time and expertise, which can pay off handsomely once complete.
The major benefit of writing a book or developing a course is that they only have to be created once and can pay off for years into the future. If the material is distributed directly to learners (through a website or app), there is no middleman to take a fee off the top, which provides authors with a greater share of the income produced.
Clearly, the downside to this approach is that they take a lot of time to complete, something usually in short supply for doctors due to their demanding day job. In addition, it can be tough to build an audience large enough to create a significant return on the time investment.
Idea #10: Develop an App
Again, doctors are experts in their field and they spend all day in offices, hospitals, and other healthcare facilities so they know where the pain points are in the medical system. Those that have the desire and/or know how could develop a software application to address a specific need.
This approach can produce passive income from sales, affiliate marketing, or in-app fees for use.
The benefit of app development is that it scales really well in that one application could be used by hundreds or thousands medical professionals worldwide. The sales ramp can be significant and ownership can prove to be incredibly lucrative.
But, again, doctors have full time, demanding jobs. While an app can certainly help them meet their financial goals, they also take a tremendous amount of time and expertise to develop – something doctors may not have.
A Few More Ideas
It may seem strange for highly compensated doctors to be thinking about making money from side hustles, but there are a number of options from which to choose if they have the desire to invest the time needed to develop them. Options include:
- Podcasts: Again, doctors are experts and may be able to develop a podcast based on their specialized type of knowledge. This approach could earn income through advertising sales, sponsorship, or affiliate marketing programs.
- Rental Property / Airbnb: Buying a rental property or using airbnb to rent a spare room or carriage house can be a lucrative source of extra income.
- Start A Blog & Social Media: Doctors turned bloggers can use their specialized medical knowledge to generate income via social media. For example, they could earn paid speaking engagements or use an affiliate marketing program to earn small commissions on sales from a company like Amazon.
Again, all of these ideas could potentially produce streams of passive income, but it is up to each doctor to determine which they are most interested in and which is the best fit for their own needs.
We all dream of financial independence, financial freedom, and the type of financial security that can be gained from developing significant sources of passive income. Doctors are in a unique position to do this because they are high income earners and have the capital to allocate to ideas or investments that can produce significant monthly cash flow.
Each investment has its risks, pros, and cons and each doctor has their own individual investment preferences. For these reasons, the options on this list should be evaluated carefully and those chosen should be suitable for each doctor’s needs.
Interested In Learning More?
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in.
If you are an Accredited Real Estate Investor and would like to learn more about our investment opportunities, contact us at (800) 605-4966 or firstname.lastname@example.org for more information.