Property Investing and Mortgage Strategies for Doctors: What Medical Professionals Should Consider
Doctors often have strong long-term earning potential, but that does not automatically make property investing or mortgage structuring straightforward.
Medical careers can involve years of training, changing hospitals, interstate moves, variable income, private practice, long working hours and eventually significant increases in earning capacity.
That combination creates both opportunities and challenges when it comes to lending and property.
Specialist Broking founder Daniel Jones recently joined Passive Income Doctor to discuss mortgage broking for medical professionals, property investing, debt recycling and some of the common mistakes he sees doctors make when building wealth through property.
Here are some of the key lessons from the discussion.
Why Use a Mortgage Broker Instead of Going Directly to a Bank?
One of the biggest advantages of using a mortgage broker is choice.
When you approach a bank directly, the bank can only recommend products available through its own institution.
A mortgage broker can assess options across multiple lenders.
This matters because the lender that appears most suitable at first glance may not necessarily be the right lender for your particular circumstances.
For example, doctors may have access to favourable lending policies through several major banks, but the most appropriate option can still depend on factors such as:
Your income structure
Your existing property portfolio
The amount you want to borrow
Your deposit or available equity
The type and location of the property
Whether you're purchasing a home or investment property
Your longer-term investment plans
Your borrowing capacity
A lender that works particularly well for one doctor may not be appropriate for another.
Can You Still Have a Private Banker When Using a Broker?
Using a mortgage broker does not necessarily mean giving up access to a private banking relationship.
Daniel regularly introduces eligible clients to private bankers within the banks he recommends.
That can provide clients with both sides of the relationship.
They have a broker helping them assess their options across different lenders while also having a dedicated contact within the chosen bank.
This can be particularly valuable for higher-income professionals with more complex lending requirements.
And if circumstances change several years later, the broker can reassess whether that lender still makes sense.
The goal should not be to remain loyal to a particular bank indefinitely.
The goal is to make sure your lending continues to support what you are trying to achieve.
Not Every Investment Property Needs to Be in Sydney or Melbourne
One of the recurring themes in the conversation was the importance of separating an investment decision from an emotional property decision.
Doctors often prefer buying property in the suburb or city where they live because they know the area and feel comfortable with it.
But familiarity alone does not necessarily make something a good investment.
An investment property should generally be assessed according to factors such as:
Rental yield
Cash flow
Supply and demand
Vacancy rates
Local employment
Infrastructure
Affordability
Population and economic drivers
Future supply
Long-term growth potential
Restricting your search to your own suburb can dramatically reduce the number of opportunities available.
As Daniel puts it, if you're making an investment decision, it can make sense to have as much of the market available to you as possible.
Cash Flow Matters When Building a Property Portfolio
Capital growth gets a lot of attention in property investing.
But Daniel regularly sees cash flow become the factor that determines whether someone can actually hold a large portfolio over the long term.
A property may increase significantly in value and still place enormous pressure on the owner's finances if the rental income is insufficient to support the debt and expenses.
Daniel discussed one medical client who had approximately a $6 million investment portfolio in addition to their home.
Despite the size of the portfolio, the properties had created a significant cash-flow burden.
The investor eventually sold and rebuilt the portfolio around investments that better suited their financial circumstances.
The lesson isn't that every property needs to be positively geared from the day you purchase it.
Rather, investors should understand how much cash they are contributing to the portfolio and whether that position is sustainable.
High Income Doesn't Automatically Make a Good Property Portfolio
Doctors can eventually reach very high income levels.
However, high income alone doesn't protect someone from poor investment decisions.
Daniel has worked with medical professionals with substantial portfolios and says one characteristic he often sees among successful investors is an emphasis on balancing growth potential with rental yield.
They don't necessarily buy only expensive inner-city properties.
They are willing to consider opportunities in different markets where the numbers make sense.
This can help reduce the amount of personal income required to continually support the portfolio.
That becomes increasingly important as the portfolio grows.
Owning one negatively geared property may be manageable.
Owning several highly negatively geared properties can create a substantial ongoing cash-flow commitment — even for a high-income medical specialist.
A 25-Year-Old Investor With a $4 Million Portfolio
One of the more interesting examples discussed during the interview wasn't a doctor.
Daniel works with a 25-year-old Australian Army captain who has built a property portfolio worth approximately $4 million across around nine properties.
His income is far lower than many of Daniel's specialist medical clients.
So how has he been able to continue purchasing?
One important factor has been focusing heavily on the underlying investment fundamentals and rental yield.
Rather than restricting himself to major capital cities, he has researched opportunities in areas where there are identifiable employment and rental-demand drivers.
That doesn't mean the same strategy is appropriate for everyone.
But it illustrates an important principle:
Borrowing capacity and income matter, but what you buy and how well the portfolio supports itself matter too.
Be Careful About Becoming an Accidental Property Investor
Another common situation occurs when a doctor upgrades their home but decides to keep their previous home as an investment property.
On the surface, it sounds sensible.
You already own the property.
You know the area.
You may have built substantial equity.
But your former home is not automatically a good investment property simply because you already own it.
Daniel has seen clients retain expensive homes worth several million dollars where the rental yield is relatively low.
Once mortgage interest and other ownership costs are considered, the property can create a significant cash-flow drain.
There can also be an opportunity cost.
The equity tied up in that property might potentially have been used elsewhere.
Before keeping a previous home, it can therefore be useful to ask:
“If I had this amount of money available today, would I deliberately choose to buy this exact property as an investment?”
If the answer is no, it may be worth reviewing the strategy with the appropriate property, lending, financial and tax professionals.
What Is Debt Recycling?
Another strategy discussed during the interview was debt recycling.
Debt recycling broadly involves restructuring debt so that, over time, non-deductible debt may be replaced with debt associated with investment or eligible business purposes.
The underlying goal is generally to reduce non-deductible debt while creating appropriately structured deductible debt.
However, this is an area where professional tax advice is critical.
The tax treatment depends on how borrowed funds are used, how the loans are structured and the borrower's particular circumstances.
Different accountants and tax advisers may also have different views on particular structures.
For that reason, Daniel strongly recommends that anyone considering a debt-recycling strategy discuss it with their accountant or qualified tax adviser before proceeding.
A mortgage broker can help with the lending structure, but cannot provide personal tax advice.
Why Debt Structure Can Matter for High-Income Medical Specialists
Debt structuring can become particularly important for doctors with high taxable incomes.
Many medical specialists eventually operate as sole traders or through structures where a significant proportion of their professional income may still be personally taxable.
At the same time, they may have a large owner-occupied mortgage.
That creates an incentive to explore whether their overall debt could be structured more efficiently.
But it is important to distinguish between a lending strategy and a tax strategy.
A lender may provide facilities capable of supporting a particular structure.
That does not automatically mean the resulting interest is tax deductible.
The purpose and use of the borrowed funds are critical.
Always obtain appropriate tax advice before implementing a debt-recycling arrangement.
Should Doctors Use Buyers' Agents?
Doctors can absolutely research and purchase investment properties themselves.
Many successful investors enjoy researching property markets and are willing to invest the time required to understand different locations.
Others simply don't have the time.
For a busy doctor, spending dozens of hours researching suburbs, inspecting properties, negotiating and coordinating a purchase may not represent the best use of their time.
That's where a reputable buyers' agent may be useful.
Daniel estimates that among some of the clients he sees with larger portfolios, there is roughly a 50/50 split between those who identify investments themselves and those who use a buyers' agent.
The important thing is understanding what you're outsourcing.
You should still understand the strategy, assumptions and numbers behind any property being recommended.
Professional help can support the decision.
It shouldn't replace your understanding of the decision.
Should Junior Doctors Buy Property?
Doctors don't need to wait until they become consultants before thinking about property.
Interns, residents and registrars may earn considerably less than established specialists, but they may also have an important advantage:
time.
Someone who purchases an appropriate investment property earlier in their medical career potentially gives that asset more time to grow before their earning capacity increases substantially.
That can create an interesting combination later.
As income rises, borrowing capacity may increase.
Meanwhile, an earlier property may have accumulated equity.
The combination of stronger income and additional equity can potentially create significantly more options later in a doctor's career.
An Investment Property May Make More Sense Than a Home Early in Your Career
There is another important consideration for junior doctors.
Medical training often involves moving.
Doctors may change hospitals, rotate through regional areas, move interstate for specialist training or eventually relocate because of a partner or career opportunity.
Buying a home very early in this process can potentially reduce flexibility.
Someone might purchase a home only to discover a few years later that they need to move.
Selling and purchasing another home can involve substantial transaction costs, including stamp duty and selling expenses.
For some junior doctors, purchasing an investment property while continuing to rent where they need to live may therefore be worth considering.
It allows them to enter the property market without necessarily committing themselves to living permanently in one location.
Whether that approach makes sense will depend on individual circumstances.
Medical Income Can Change Dramatically Throughout a Career
One of the unusual aspects of lending to doctors is how quickly their financial position can change.
A doctor may progress from relatively modest earnings during their early training years to a significantly higher income after qualifying as a specialist.
That creates different lending considerations at different stages.
Interns and junior doctors
Flexibility can be particularly important because their location and specialty pathway may still change.
Registrars
Income and borrowing capacity may be improving, while career and location decisions are becoming clearer.
Consultants and specialists
Income can increase considerably, potentially creating substantially higher borrowing capacity and opportunities to restructure debt or expand an investment portfolio.
The appropriate lending strategy at 28 may therefore look completely different from the appropriate strategy at 38.
That's why lending should be reviewed as your career develops.
Some Doctors May Be Eligible for Higher-LVR Lending
Doctors and certain other medical professionals can have access to specialised lending policies.
Depending on the lender, profession and circumstances, eligible medical professionals may be able to borrow at higher loan-to-value ratios without paying the level of Lenders Mortgage Insurance that would normally apply to other borrowers.
This can potentially allow eligible doctors to purchase sooner or retain more of their available capital.
However, policies vary considerably between lenders and can change over time.
Being a doctor does not automatically mean every medical lending policy will be appropriate for your situation.
It's worth comparing the available options rather than assuming one particular bank has the strongest medical-professional offering.
Build the Right Professional Team Around You
Perhaps the most important lesson from the conversation is that doctors don't need to become experts in every area of finance and property.
But they should understand the decisions being made.
Depending on your circumstances, your team might include:
A mortgage broker
Accountant or tax adviser
Financial adviser
Buyers' agent
Property manager
Solicitor or conveyancer
Each person should bring expertise in their respective area.
Your job is to understand the overall strategy and make the final decisions.
As discussed during the podcast, you can outsource expertise — but you shouldn't completely outsource your understanding.
Mortgage Broking for Doctors and Medical Professionals
Medical professionals can have unique lending opportunities, but also increasingly complex financial circumstances as their careers progress.
The right structure may depend on your career stage, existing properties, income, future plans and whether you're buying a home, refinancing or building an investment portfolio.
At Specialist Broking, we work with doctors, medical specialists and other high-income professionals who often require a more detailed and hands-on approach to lending.
Rather than simply finding a loan for the next transaction, we look at how your lending fits into your broader objectives and how that strategy may need to evolve over time.
If you'd like to review your current lending or discuss your next property purchase, speak with the Specialist Broking team.
General information only. This article does not constitute financial, investment, legal or tax advice. Lending policies, tax treatment and individual circumstances vary. Seek advice from appropriately qualified professionals before making financial or investment decisions.
