Dentaltown January 2023 - 8

howard speaks
column
Get Active About Passive Income
A while back, a Townie asked me how they could
know if they were ready to retire. There are several
elements at play in this decision, but here I'm going
to talk about the fi nancial readiness aspect-things
dentists should be doing today in preparation for
when it's fi nally time to hang up the white coat.
I'm a huge believer that, in addition to running
your practice, you should be fi nding and investing
in good sources of passive income-things like real
estate and dividend stocks.
Real talk about real estate
Let's say you bought all the gold in the world and
put it in your backyard. (It's rare enough that " all
the gold in the world " would fi ll two Olympic-sized
swimming pools.) When I came back one year later,
you'd still own all the gold in the world, but gold is
a nonproductive asset. It didn't do anything; it only
has value if you can fi nd someone who'll pay more
than what you bought it for. (Th e same principle applies
to Bitcoin.)
On the other hand, let's say I bought a farm. Th e
money-making element of farm ownership could
never be just the profi t I expect to make when I sell
it-every year I owned the farm, I'd be earning revenue
by selling my harvested crops, too.
Th e same applies to rental properties. Th e building's
resale value isn't the only draw; there's also the
income earned from monthly rental payments. And
even if you spend some money on improvements,
that investment should lead to higher monthy rental
fees, which means more income over the long run.
A dentist we'll feature in the February issue of
Dentaltown has found success in
buying commercial real estate,
including offi ce and warehouse
buildings. (When he started out,
some buildings were in states he
hadn't even visited in person!) Th e
right places have high demand
for occupancy, and once the passthrough
expenses are taken care of,
anything above that is net profi t.
by Howard Farran, DDS, MBA, founder and CEO
8 JANUARY 2023 // dentaltown.com
Investments that pay dividends
A simpler way to boost your passive income is by
purchasing dividend stocks. Most of the ones I own
are big brands such as Apple, Costco, Home Depot
and Kraft, because they almost always pay dividends.
When you buy stocks like these as investments, you
don't need to keep checking the price every single
day, because you know over time you'll see growth.
Th ere might be downturns or crashes, but generally
these types of stocks earn 5% a year-a nickel for
every dollar you put in.
I'm 60 now, and I'm thinking about my grandchildren,
the youngest of whom is about 7 months
old. Do I think Coca-Cola and Kraft will still be
around when Audrey is my age? Of course! And
chances are, you're already supporting the companies
you'd invest in: You're shopping at Costco, your
practice fi nancing is with Bank of America, and your
kids have Apple phones and are watching YouTube.
If you reduced your spending now and built passive
income instead, fi ve or 10 years down the road
you'll be reaping the rewards, with zero eff ort. If you
skipped a $10,000 family trip to Hawaii and invested
that money in big stocks, you'll earn more down
the road-even at a conservative 5% annual growth
rate, that $10K would be worth more than $15K
after nine years.
Find the right combination
I've always preached that dentists of all ages need
to live below their means and spend less than they
earn. Bolster that by buying shares in companies you
know will be around when your children and grandchildren
are adults, and investing in properties that
pay rental revenues, and these productive assets will
pay you over the long run. Th en you won't need to rely
only on what you can sell your dental practice for. ■
Dentaltown founder Dr. Howard Farran would love
to hear your thoughts about the ideas and suggestions in
this column! Verifi ed members of Dentaltown can post
their questions and comments under the online version
of the column, which is at dentaltown.com/magazine.
http://www.dentaltown.com/magazine http://www.dentaltown.com
Dentaltown January 2023

Table of Contents for the Digital Edition of Dentaltown January 2023
