When it comes to organizing their personal finances, Dentists and Orthodontists have a unique challenge. On the whole, they are high income earners (median salary is ~$175,000 annually), but they also work very long hours seeing patients and keeping up on the latest treatments. As a result, they may not have the time needed to plan and execute their own financial plan. Allocating capital to investments that produce passive income can help solve this issue.
In this article, we are going to describe ten investment ideas, specifically geared towards Dentists and Orthodontists, that have the potential to produce passive income. For each one, we will describe what it is, how it produces passive income, and the pros and cons of allocating capital to it. By the end, the goal is for Dentist/Orthodontist readers to recognize at least one or two ideas that may be a suitable fit for their own preferences.
At First National Realty Partners, we specialize in the purchase and management of grocery store anchored retail centers, which tend to be good passive income producers. If you are an accredited investor and would like to learn more about our current investment opportunities, click here.
“Best Investments” vs. Most Suitable Investments
Often, we get asked ‘“which is the best investment?” Whenever this happens, we do our best to advocate for rephrasing the question to “which is the most suitable investment.” This means that it can be difficult to objectively state that one investment is the “best.” Each investor is unique and has their own needs and preferences. As a result, “the best” investment may look a little bit different for everyone. So, we encourage investors to find the most suitable option. To do so, several factors should be considered:
- Risk Tolerance & Return Objectives: In investing, risk and return are highly correlated. The higher the risk, the higher the potential return. The lower the risk, the lower the return. So, each investor should think about their own tolerance for risk and volatility within the context of the return that they want to achieve. For example, an investor is unlikely to earn a 15% annual return with very low risk so investors must make a choice and work hard to find the highest return for the least risk possible.
- Time Horizon & Liquidity Preference: In general, investment profits are made over the long term. But, not every investor will feel comfortable locking up their capital for five or ten years at a time. So, again, investors must look for opportunities that are in the sweet spot of liquidity and time horizon.
- Debt Load & Emergency Fund: Dental school is notoriously expensive and it is very common for aspiring Dentists and Orthodontists to take out student loans to pay for it. According to this survey, the average debt loan for graduating dental students was ~$305,000. As a general best practice, Dentist investors should work to actively pay down debt and establish an emergency fund with three to six months worth of living expenses prior to investing in a major way. So, in some cases, the best investment for Dentists may be to reduce their debt load.
- Capital Available to Invest: Finally, different investments require different amounts of capital to get started. At one end of the spectrum, shares of stock can be purchased for as little as $25 or less. At the other end, the types of syndicated investments that we offer can require a minimum investment of $25,000 or more. Dentist investors should consider the amount of capital available to invest to determine which opportunities are most suitable.
Again, the point here is clear. Instead of thinking about the best investments, investors should think about those that are the most suitable for their own unique circumstances. With this thought in mind, below are ten ideas designed to generate passive income for Dentists and Orthodontists.
Idea #1: Commercial Real Estate Syndications
A commercial real estate syndication is a deal structure that allows Dentist investors to purchase a fractional share of a commercial property, while outsourcing the key tasks of finding, financing, and managing a property to a professional investment firm. In return for their capital, investors are entitled to a pro rata share of the cash flow and profits produced by the underlying asset.
Real estate syndications produce passive income from renting out the space in the property to commercial tenants.
The major benefit of a syndicated investment is the passive income it produces. In addition, there are some tax benefits, a chance for price appreciation over the long term, and it is truly passive because the investment firm manages the day to day operations of the asset.
The downside is that investors don’t really have any say in the day to day operations of the property. In addition, fees charged by the investment manager can eat into profits.
Syndications are typically a suitable fit for accredited investors who have large amounts of investable capital, a long term time horizon, and a moderate risk tolerance.
Idea #2: High Yield Savings Accounts
A high yield savings account is a depository bank account offered by a financial institution that pays interest on balances held in the account. They produce passive income from the monthly interest paid.
The benefit of a high yield savings account is that balances are FDIC insured up to a certain amount, the income is truly passive (which allows Dentists to focus on their day job), and the risk of capital loss is quite low. These are stable, consistent investments.
The downside of a high yield savings account is that the interest rate is not all that high, usually in the .50% – .75% range and it can change in response to market conditions. As a result, it takes a substantial deposit balance to produce any significant amounts of extra income.
High yield savings accounts tend to be suitable for investors with substantial deposit balances and a very low risk tolerance.
Idea #3: REITs
A Real Estate Investment Trust – REIT for short – is a type of investment company that owns, operates, or finances real estate assets. Investors can purchase shares in them, which gives them fractional ownership of a portfolio of income producing assets. REITs tend to specialize in specific property types like multifamily, industrial, or health care facilities (like dental offices).
REITs produce passive income from the rents charged to the tenants who occupy their property. Or, in the case of Mortgage REITs, from loan payments made by borrowers.
The major benefit of a REIT is that they tend to offer fairly high distributions (3% – 5% annually), have a chance for share price appreciation, a low minimum investment, and offer good liquidity (for publicly traded REITs).
The downside of a REIT is that investors don’t have any say in which properties their capital is used to purchase and share prices can experience some degree of volatility that doesn’t reflect the fundamentals of the underlying portfolio.
REITs tend to be a suitable option for investors who prefer liquidity and have smaller amounts of investable capital.
Idea #4: Dividend Stocks
Some companies, usually more established ones, make the choice to return capital to shareholders in the form of periodic dividends. As a result, shareholders in dividend stocks get some income and the chance for price appreciation. For example, a share of Walgreens stock pays an annual dividend of $1.91, which is good for a 4.21% yield on the dividend alone at the time of this writing.
Dividend stocks produce passive income from the dividends paid, usually on a quarterly basis. For example, an individual who owned 1,000 shares of Walgreens could expect (($1.91/4)*1,000) ~$477 in income each quarter from the dividend at the time of writing.
The benefits of owning dividend stocks include the periodic dividend income, liquidity, low minimum investment, and potential for share price appreciation.
The downsides of dividend stocks is that their prices can be volatile and there is an ever-present risk that company losses could cause them to cut the dividend, which is almost certain to have a negative impact on the share price.
Dividend stocks tend to be a suitable fit for investors with a high risk tolerance, a preference for liquidity, and a medium to long term time horizon.
Idea #5: Owning Rental Properties
Instead of buying a fractional share of a rental property, as is the case in a REIT or syndication, some investors may prefer to purchase a rental property outright. This could be a single family rental, vacation rental, or even a commercial office property that could be leased back to the investor’s dental practice.
Rental properties produce passive income from the rents paid by tenants.
When compared with a REIT or syndication, the benefit of rental property ownership is that the owner controls all aspects of the property selection and management process. As a result, they also get to keep 100% of the profits.
The downside of complete control is that owners also take 100% of the risk. In addition, direct property ownership can take up the bulk of an investor’s capital which can make it difficult to create a diversified portfolio of assets. In addition, it can be very time consuming to manage a rental property, which can be difficult to come by for Dentists and Orthodontists.
Rental property ownership tends to be suitable for investors with a large amount of investable capital, a long term time horizon, plenty of spare time, and a high risk tolerance.
Idea #6: Peer to Peer Lending
Typically, when a borrower needs funding for something, they turn to a traditional bank for a loan. But, not all borrowers qualify for traditional bank financing and those that don’t sometimes turn to a peer to peer lending platform (like Lending Club) as an alternative. These platforms match individuals with money to lend (Dentists) with those who need to borrow it.
Peer to peer loans produce passive income from the monthly loan payments of principal and interest.
The benefit of peer to peer lending as an investment is a regular stream of income. In addition, investors can get started with a relatively small amount of capital and the lending platform manages all of the logistics of loan payments and chasing delinquencies.
The downside of a peer to peer investment is that these loans are essentially unsecured so lenders have little or no recourse in the event of a default. In addition, capital may be tied up for a three to five year time frame.
Peer to peer loans tend to be a suitable fit for investors with a medium to long term time horizon, a high risk tolerance, and a desire for consistent income.
Idea #7: Real Estate Crowdfunding
A real estate crowdfunded deal is very similar to a syndication with one exception. Crowdfunded deals are often originated on a website platform that allows investors to choose from a variety of deals, locations, and sponsors. Like a peer to peer loan, the platform manages all of the logistics of distributing property income to investors.
A crowdfunded deal produces passive income from the rents charged to tenants who lease space in the crowdfunded property.
The benefit of this approach is that investors can get into the deal for a smaller minimum investment, can choose which property they want to invest in, and get to partner with experienced operators to manage the property.
The downside of a crowdfunded investment is that they are usually only available to Accredited Investors, can have high fees, and the operators chosen by the platform may not be fully vetted for their experience and track record.
Crowdfunded deals tend to be suitable for investors with a moderate to high risk tolerance, accredited status, and a long term time horizon.
Idea #8: Certificates of Deposit
A Certificate of Deposit – CD for short – is an instrument offered by financial institutions that pays interest based on the amount of time an investor is willing to tie up their capital. For example, a 6-month CD pays a lower rate of interest than a 5-year CD.
CDs produce passive income from the interest paid on the account balance.
The benefit of a CD is that it is very safe and offers a stable return.
The downside of a CD is that the rates paid, even for the longer term CDs, are relatively low and unlikely to amount to a lot of money in an investor’s pocket. In other words, investors trade safety for return.
CDs are a suitable investment for those with a short to medium term time horizon, and a low risk tolerance.
Idea #9: Writing an E-Book
Dentists and Orthodontists are experts in the field of Dentistry. As such, there may be a demand for their knowledge in the form of a book. An e-book is a document that is written and self-published and sold on an electronic platform like Amazon, LinkedIn, or their own website.
An e-book produces passive income from sales of the document.
As a side hustle, the benefit of an e-book is that it scales very well. In other words, there is some upfront time and effort needed to write it, but once complete, hundreds or thousands of copies can be sold with little incremental effort or cost.
The downside of an e-book is that it takes a long period of time and a significant amount of effort to write, market, and sell through channels like social media and websites. As such, this isn’t truly a passive income strategy and many Dentists may struggle to find the time to write.
An e-book tends to be a suitable investment for Dentists who truly enjoy writing, have or are willing to make time to do so, and have a knack for self promotion and marketing.
Idea #10: Blogging
A blog is a web-based log on a specific topic and Dentists are prime candidates to write one on the specifics of their field. For example, Dentist bloggers would write posts about how to hire the best hygienists, how to make new patients feel comfortable, best practices for oral health, or about cutting edge treatment techniques in their field.
Blogs have the potential to produce passive income from a number of channels including advertising, affiliate marketing, paid speaking engagements, or as a platform to sell books or promote podcasts.
The benefit of a blog is that they are very easy to start, require little upfront cost, and can reach tremendous scale.
But, this is not truly a passive endeavor. It takes a lot of time to research, target, and write blog posts. As a result, this may be more of an active income source than passive.
Blogging also tends to be a suitable investment for Dentists who have some spare time and detailed knowledge of how this strategy can fit into a broader marketing strategy for the dental practice.
Why Dentist Should Find Passive Income Streams
Dentists work long hours and may not have much time to actively devote to activities that will help them achieve financial independence. Fortunately, they may not have to. There are a number of investment options that can generate passive income that will both help them secure their financial future and provide them with the time needed to focus on their chosen profession.
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.