you own real estate you are paying your mortgage instead of paying someone else’s rent. People need a place to operate a business. There are plenty of health professionals looking to operate their businesses who need to rent space. These needs offer chiropractors an opportunity to rent out their property and receive rental income. Naturally, there are operating expenses in owning a piece of property such as mortgages, maintenance and utilities. However, the more health professionals you have paying rent the less your mortgage costs. This is where multidisciplinary practices become very enticing since patients enjoy the luxury of one-stop shop-ping, and property owners (you, the chiropractor) enjoy the fi-nancial windfall of passive income. Appreciation Aside from receiving rental income, another way to create wealth from real estate investing is to have the property you own appre-ciate in value. Let’s say you own real estate and run your practice as a single practitioner. In this case, you are not receiving any rental income, but this ownership still offers the possibility for your property to appreciate in value. A simple way to calculate the amount of appreciation is using the rule of 72. The rule of 72 is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to dupli-cate itself. For example, in the GTA, from 2001 to 2011 – over a 10-year period – the price of real estate doubled from $250,000 to $500,000. Using the rule of 72 we can determine the percentage of increase each year by dividing 72 over 10 years. The result is a 7.2 per cent average increase per year. who made $100,000 after expenses would be able to pay himself or herself a salary of $50,000 from which he or she would take home about $37,000. The remaining $50,000 would stay in the corporation where it would be taxed at 15 per cent, meaning the corporation would pay $7,500 in taxes, leaving $42,500 in the corporation. When you add $37,000 and $42,500 it totals $79,500 – over $8,000 more than the sole proprietor. For some reason, many chiropractors receive advice from accountants who discourage them from incorporating their practice by saying that they “do not make enough yet.” Take it from me – this is totally untrue. Being incorporated is worth it, even if you are just starting out. In my first year in practice I was incorporated and I made $50,000. I chose to keep the majority of the money in the corporation, and at the end of the year I paid $6,000 less in taxes. It is worth your while to incorporate if you plan to be successful. Preparing today for tomorrow is always a solid game plan when looking to grow your savings. The key is building a team around you that you trust – like a financial planner, real estate agent and a lawyer. Throughout your business dealings you will need to consult this team on your journey to maximizing your savings. Should you have any questions please feel free to email me at [email protected] or send a message through my Twitter account @hamback. Leveraging Leverage is simply using someone else’s money to buy some-thing. A mortgage is an example of leverage. Leverage can in-crease your returns. Consider this example: you purchase a property for $400,000 and use $40,000 of your own money and borrow the rest. If after five years that home is worth $500,000, then it has appreciated 20 per cent by going up $100,000 in value. If you sold the property and paid back the mortgage you would have $100,000. This would represent a 150 per cent return on your money. Accounting Whether you are already practicing chiropractic – or are getting ready to – I highly recommend you professionally incorporate your practice. In 2002, the Ontario government made it possible for chiropractors to incorporate their respective practices, and many chiropractors, such as myself, have taken full advantage of it. Incorporating allows chiropractors to pay less tax and keep more money in their business to help grow their practices. The government allows this in an effort to stimulate small business growth and it can help chiropractors reach their financial goals. This is how it works: An un-incorporated practice is generally called a sole propri-etor. If a sole proprietor makes $100,000 in a year after expenses, the government will take about $29,000 in taxes, leaving $71,000 for the chiropractor to take home. An incorporated chiropractor July/August 2014 Canadian Chiropractor 23 Ads.indd 1 2014-07-10 9:33 AM
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