Comparing Investment Alternatives

Investments can be challenging to analyze. For example, how do you compare investing in a stock, a second home, a commercial investment property, or bonds and CDs? They all require different initial investments, different holding periods with different costs or cash flows, and ultimately, their returns payout on different schedules. Combined with the fact that physicians need to maximize their investment returns, it's paramount that you utilize the proper tools to measure each investment and compare them on an equal footing. Seasoned investors use the Internal Rate of Return (IRR) as that tool.

IRR is defined as the percentage rate earned on each dollar that remains in an investment each year. Technically speaking, the IRR of an investment is the discount rate at which the sum of the present value of future cash flow equals the initial capital investment. The IRR method calculates the internal rate of return of the differential cash flow between any two investment alternatives and compares that rate with the user's opportunity cost.

What does this mean to you and your potential investment? In order to decide what to invest in, you need a tool to measure IRR and then the ability to compare the two. Where do you find such a resource? Look no further than Healthcare Real Estate Services. We will compare your real estate investment alternatives based on the IRR Method and maximize earnings on every dollar invested.

Beyond measuring the IRR of investments, a major consideration should be given to the types of investments that might be suitable for your portfolio. Investment experts have always preached diversification. In today's ever-changing economy, it's even more important. World and business events can change our financial situation rapidly. We've all experienced the volatility of the stock market and the minimal returns of the bond markets. Many physicians are utilizing various types of real estate investments to intensify their returns and round out their portfolio. In real estate investing, there are a variety of alternatives to consider.

Some participate in real estate investments through public or private Real Estate Investment Trusts (REIT's). There are no property management issues, and you don't make any decisions. You simply own stock in a company that owns and manages the real estate. If for no other purpose, a REIT can help you diversify your portfolio and derive some of the benefits of real estate.

Our population continues to expand. Although second homes are sometimes considered investments, the negative cash flow and cost of ownership may override the appreciation of the property. While interest rates have been low, and the use of interest-only residential loans has been prevalent, fluctuating interest rates that increase this appreciation trend could end or reverse.

If you are a private practice physician, an excellent option involves your office space. Some physicians can purchase office space to lease to their own practice. If you have the resources to create this scenario, it can be ideal. The practice writes off the lease, and you have a stable, manageable tenant in the form of your own practice. You also have the benefits of a personally-owned and managed real estate investment, including appreciation, positive leverage, principal reduction, and depreciation tax deductions. Most importantly, you have control of your building.

"Limited Partnerships are another alternative to participating in the real estate market with limited risk and a strong potential upside. One of the benefits of a limited partnership is that you have a "general partner" managing the investment who's both knowledgeable and savvy. You ride their wave of experience and benefit from the general partner's expertise. Generally, your risk is limited to your investment, and there are no management responsibilities. If the partnership is acquiring an existing income property with a verifiable history and is located in an area expected to appreciate, the due diligence can be fairly straightforward."

You work hard for your money. You need to make your money work hard for you. Look at the equity in your current assets and consider if diversifying your portfolio would benefit you. Are you getting the highest IRR possible? Can you create more cash flow? Can you build more wealth for your retirement? Consider the alternatives, define a clear strategy, and make good decisions.

Contact HRES at 248-514-9197 or submit the form below to request a consultation.