How a Neurosurgeon offers a prescription of real estate for passive investing

I am a trained neurosurgeon with decades of experience. I have lived on many continents ranging from Asia to North America, and I have taken an oath to help people and save lives. However, I also have a passion for real estate. In fact, some say that I am “a practicing real estate developer by day, and licensed neurosurgeon by night!”

Andrew Carnegie once said that “Ninety percent of all millionaires become so through owning real estate.” That statement is as relevant today as it was when Mr. Carnegie walked the Earth. So, when I am not in the Operating Room, I am trying to help my fellow physicians to understand the benefits of real estate.

I don’t invest in cars, antiques, art or collectibles as that is merely a hobby. Yes, I do have investments in stocks, commodities, and bonds, but for the little guy like me, I feel like I am always playing at a disadvantage to the large, institutional investment banks. As an equity investor, you must be smart, well diversified, and strategic. Otherwise, you might as well take a trip to Las Vegas or Monte Carlo.

Real estate is a fixed asset. It must be developed, built and managed to bring in rent paying tenants. It has revenues, expenses and creates cash flow. Unlike its alternative investments in Silicon Valley, it is not just an idea, source code or big data created out of the ethernet. As such, to build a replacement in real estate, you must spend cash to construct the asset. In Silicon Valley, you simply need to come up with the latest and greatest idea or technology to make mankind more efficient or accessible. 

Development capital vs. idea ... tangible asset vs. dream … cash flow vs. subscribers. Don’t get me wrong, I wish I was like Forest Gump who invested in some fruit company … called Apple! But real estate is a fixed asset that is not part of the “poof economy” that is “here today and replaced tomorrow” by a new idea that will leap-frog the current technology. 

As Victor Davis Hansen recently stated, “Money is a construct. It can be created from thin air. Annual deficits and aggregate national debt no longer matter much. Prior presidents ran up huge annual deficits. But at least there were some concessions that the money was real and had to be paid back. Not now. As we near $30 trillion in national debt and 110 percent of annual GDP, our elites believe permanent zero interest rates make the cascading obligation irrelevant.” 

This assessment in the United States also rings true throughout the world as virtually every international treasury is printing money to quench the insatiable appetite for economic stimulus and social support. With this free flow of monetary supply, comes inflation. It is true that technological advances and the efficiencies of globalization can affect inflation as defined by measures such as the consumer price index. However, there is another aspect of inflation that affects your ability to purchase goods and services beyond the supermarket and the gas station; the true cost of housing, education, healthcare and more.

As we all learned in ECON 101, when inflation increases, purchasing power declines, and each dollar can buy fewer goods and services. When inflation is on the upswing, income stock prices generally decline. In the U.S. market, the historical proof is somewhat sporadic, but it does show a correlation to high inflation and lower returns for the overall market.

As you would expect, the antithesis will occur for real estate values as the values tend to increase when high inflation hits the economy. The reason for this is obvious. Since the price of construction materials will be higher, developers will spend more to build new properties. This growth in replacement value will lead to an increase in the price of existing and new real estate assets. 

So, as real estate values are expected to be on the rise, then what investment strategy do I prescribe to my fellow physicians? 

Clearly the hospitality and entertainment sectors are on the cliff due to COVID travel mandates. Commercial office space is uncertain given the new economy of remote office and the ability of corporations to dramatically reduce facility expenses. And retail, which was already hit by the Amazon, Alibaba and Taobao evolution, got a double whammy as many of these “mom and pop” restaurants, service providers and soft good stores, are now defunct and out of business. Without the tenants to pay rent, retail investments are highly suspect.

That leaves multi family. People will always need a place to live, and the middle-class society just got larger due to COVID. Additionally, many countries are exploring the idea of increasing the minimum wage, which provides additional income to a large segment of our economy, of which the vast majority are renters. 

So, as I look to the future, I am investing heavily in the middle-class, multifamily sector, and I am leaning into this COVID storm. With value-growth caused by inflation, enhanced cash flow due to low interest rates and increased demand for this asset class by most institutional buyers, I am writing many “prescriptions” for real estate these days.  It is a lot safer to park your money in real estate, where it will earn a decent return and allow you to build wealth slowly and retire rich. 

Dr. Masaki Oishi, M.D., Ph.D. attended Cornell University Medical College where he earned his MD degree in 1996, and his PhD in Molecular and Cellular Neuroscience from The Rockefeller University. Dr. Oishi also was the Co-Founder & Chairman of MarketSpace Capital where he brings a wealth of experience in the Commercial Real Estate sector having successfully invested and sold over a quarter of a billion dollars in commercial properties over the last 30 years.