Why did 2 Optometrists Create an Apartment Investment Firm?
We love patient care. Can we please just get that out of the way before moving much further? When people find out about our passion for sharing apartment investment opportunities, they sometimes take it as a sign we are optometrists who don’t like spending time in the exam room. Nothing could be further from the truth, and it’s that narrow mindset that has spurred us to blaze our own path–to change the optometrist’s perceptions of financial wellness. On a more granular level, here’s 3 key reasons why we started New Sight Capital.
We didn’t want 100% of our income to be dependent on insurances and patients
Again, we love patients–not all of them, but most of them. We don’t love insurance, but we understand that, without it, patient access to care would be severely limited. Yet, if you’ve been doing eye exams long enough you are well aware of the tension that exists between optometrist, insurance, and patient. You’ve encountered many patients who have the warmest and most humbling things to say about your care and practice, but if they change to an insurance plan that you don’t take, you’ll never see them again.
Further tension results when insurances, especially vision plans, give the perception to patients that their small monthly premium means they have the best benefits with absolutely no copays. Patients accept the misleading advertising and sign up for the plans without reading the fine print. When they face the reality of their true out-of-pocket expenses, they blame you. When they call the insurance company, the reps will also blame you and your greedy fees. Meanwhile, insurances find a way to consistently reduce reimbursements to you even though every single expense related to delivering services in your office increases significantly every year.
We reached a point in our professional careers where we just didn’t want to have all of our income dependent on the above scenario. You may be at that point as well. While it’s a shame the insurance-patient-optometrist relationship has been made to be so contentious, it will only get worse. That may mean further degradation of patient relationships or operational profitability or both. Either way, we made a firm decision that we wanted a significant portion of our income to come outside of this arena–somewhere far removed from these disruptive influences.
We needed to find another source of income for our respective families, and, ultimately, that flourished into investments in apartment real estate. Not only did it establish reliable streams of cash flow outside of eye care, it also met a few other key criteria.
We wanted tax-efficient (even tax free) cash flow
I don’t think optometrists love paying taxes–especially when the earned income lands them in the top one or two tax brackets. It’s frustrating to be paying back $200k in student loans while also getting saddled with 35% to 50% in combined income tax rates. Like most people who’ve ever read Rich Dad, Poor Dad by Robert Kiyosaki, we realized we were missing out on what the wealthy already knew: real estate is the best way to generate income with greatly reduced taxes—or even no taxes!
In doing research, we quickly found that larger multifamily (apartment) investments had the best tax efficiencies. Why? Accelerated depreciation! Commercial assets allow the owner to depreciate the value of the assets over a long period of time. The owner can use that yearly depreciation as a non-operating expense which helps reduce the taxable income–and reduce the tax burden. However, apartment real estate allows for a process by which you can segregate certain assets and depreciate them faster. Depending on the property, the front-loaded depreciation may reduce or even eliminate the tax liability of the cash flow from the property. Yes, there are scenarios where you pay no tax on cash flow from apartment investments.
Given the amount of taxes most optometrists pay on their regular income, we knew this was something we had to share with other eye doctors in the trenches. When we did start to have these conversations, many optometrists were surprised to learn that real estate investments had cash flow tax benefits they couldn’t find anywhere else–including stocks.
We wanted our investments to be stable and passive
It seems, as of late, everyone talks about investing in stocks. In much of the pre-COVID bull market and the post-COVID rebound, it’s not been hard to pick a few stocks and see considerable appreciation. The questions we’ve been asking are: When does this run breakdown? Do I really want most of my investments in such a volatile environment? While stock returns can be significant (and subject to capital gains tax), we wanted much more stability and predictability. What we found was apartment real estate has been one of the most stable asset classes over the long term. Even when the housing crash happened in 2008, apartment housing kept steady. The reasons are pretty simple: people need housing even in recessions, many people cannot or will not buy a house, and there are too many roadblocks to building new apartments which means supply never outpaces demand. We found rent prices are key to driving valuations of apartment real estate, and rent prices historically go up over time. We just couldn’t find other asset classes that had that kind of stability–both in cash flow and valuation.
But, here was a big issue: we were busy seeing patients and didn’t want to be busy taking care of clogged toilets, broken refrigerators, or noisy and disruptive renters. We wanted all of the above benefits but we wanted passive involvement. That is what led us to apartment syndications, which is really the pooling of collective capital from small investors to acquire an apartment complex. The investors just simply invest money and receive distributions, as well as profit from the eventual sale of the asset. That’s it. No other work required by the investors. There’s just not any other investments like apartment complexes: steady cash flow, stable and resistant in down economies, tax efficient cash flow, and no work required by the investors.
There was just one more problem: who do we trust with our money? There are plenty of apartment syndicators, but we never felt fully assured of their integrity–and they certainly couldn’t relate to our professional challenges as optometrists. We felt that was important. This was also our light bulb moment. We had to start our own apartment investment firm.
So, New Sight Capital was born with the purpose of giving our colleagues an opportunity to join us in apartment real estate investing. We wanted to build a company that understood the unique challenges of the investors (optometrists)–not in a general sense, but through a shared experience. We’ve felt the pain and frustration that comes with our incomes depending 100% on the patient-insurance predicament. We’ve got student loans. We’ve seen our take home pay reduced by being taxed near the top of the brackets. And, we didn’t always have time to seek out more active investments.
If these are your pain points as well, then New Sight Capital is the perfect place for you. We can relate. We can help. Register with us here to learn more about syndications and our current and upcoming offerings.
