Today’s PhREI Network post come to us via the Prudent Plastic Surgeon, who asks the simple question: Do you have to invest in real estate as a doctor?
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If you’re a doctor who is interested in personal finance, eventually you’re going to run across a certain segment of the physician finance community that invests in real estate. It’s almost inevitable. And the more you look, the more doctors you’ll find who invest in real estate. They tend to be outspoken about real estate investing, and start blogs that have posts with titles like Why I’m investing in real estate over stocks.
You might eventually ask yourself: “Wait, do I have to invest in real estate too if I’m serious about personal finance?”
With this post, below, PhREI member Jordan Frey tackles this question in a thoughtful and thorough manner.
This post first appeared on the Prudent Plastic Surgeon.
Nope. It’s a simple answer. Post over. Ok…you got me, I’m not gonna let you off the hook that easily. But I guess maybe the more appropriate question is, “Should every doctor invest in real estate?”
You all likely know by this point that I love investing in real estate. I see it as the biggest and truest wealth accelerant. I believe that in general. But for high income earners like physicians, that goes 100x.
And as a last point of clarification before going into my arguments, I’m talking about real estate investing beyond something as simple as REITs. Owning. REIT is like owning an index fund in real estate. It’s pretty much totally hands off.
So, we are talking about things like syndications, real estate funds, or actively owning/investing in real estate.
Does every doctor need to invest in real estate?
I’ll answer the first question that I posed in a bit more depth here.
Every doctor does not need to invest in real estate. As a physician, you are a high income earner. You can certainly build wealth without investing in real estate.
In fact, I’ve broken it down to a simple formula that I share here.
Make money over your (30 year) career. Save at least 20% of it. Invest it wisely in broadly diversified index funds.
You will grow your wealth such that you can retire comfortably and live off of your nest egg safely.
How Much Is Enough Retirement Savings?
But, you likely won’t reach financial freedom (AKA the ability to retire if you so desire) early. So you probably won’t “FIRE.” And that’s absolutely fine. It’s not everyone’s goal.
However, for me, it is the goal. I don’t actually want to retire but I want to reach FI so that I can practice on my terms, Because I want to, not because I have to.
That’s why I go beyond the basic wealth formula.
Should every doctor invest in real estate?
Now let’s jump into the real question at hand.
Yes. I think that every doctor should invest in real estate.
Why you ask? Well, like I said above it is a wealth accelerant. It builds your wealth in numerous ways when done correctly as I’ve outlined before. These wealth building machinations include:
- Cash flow
- Equity build up via mortgage payments by tenants
- Appreciation (mostly forced appreciation, I do not rely on market appreciation)
- Tax benefits including potential to shelter active (W2, 1099) income via REPS
So, there are a ton of benefits. And honestly, it is not that difficult or that much work.
And this is where I tend to lose people…
Why don’t most doctors invest in real estate?
There are a lot of reasons. And they can seem very legitimate. I had the same thoughts when I first learned that doctors were using real estate to achieve financial well-being and financial freedom.
- I don’t know anything about real estate
- I won’t be able to do it as a full time doctor/surgeon
- It’s too risky
- It’s too much work
- I don’t want to deal with calls from tenants
Admit it. You have a lot of the same thoughts!
But I am here on the other side to tell you that you can do it!
Let’s do a thought experiment
Before you started your medical training, what did you tell yourself?
Did you tell yourself:
- I don’t know anything about medicine
- It’s too much work
- It’s too risky (for so many reasons…)
- I don’t want to deal with calls from patients/nurses/partners/etc.
No! These thoughts may have crossed your mind. But you pushed through and believed in yourself. You believed in yourself so much that most of you took out 6 figures worth of loans based solely on the belief that you could become a doctor and therefore repay them.
So, why is this any different?
What type of real estate should you invest in?
I hope that this thought experiment has opened your mind a bit to the idea of using the amazing wealth building opportunities of real estate as a part of the path to your financial freedom.
You may now be asking where to start or what type of real estate investing in best for you. Well, thankfully there are a ton of resources here on The Prudent Plastic Surgeon for investors of any (or no) experience.
Real Estate Investing Resources:
- A Physician’s Guide to Real Estate Investing
- How To Actually Buy A Real Estate Investment Property
- How to Screen & Analyze Investment Properties the Right Way
- Powerful Case Study of Passive Hustle in Real Estate Investing
- How to Pick the Right Real Estate Market
- The Complete Physicians’ Guide to Real Estate Syndications
- Real Estate Investing: The Good, The Bad, and 50% Returns!
- How To Get That First Investment Property Under Your Belt
Should a doctor only invest in real estate?
I don’t necessarily have a problem with this.
However, I am a big fan of a hybrid investing approach for a bunch of different reasons outlined here.
Here is a quick breakdown of different REI opportunities
This is what Selenid and I do. It certainly requires a more hands-on approach but the return is so much greater than other more “passive” real estate investing. The work is mostly on the up front end in terms of buying a property, getting it ready to rent and renting it out. After that, it’s remarkably passive, especially when you automate things like we have.
Syndications are when you pool money with other investors to buy a larger property. It’s much more hands off since you do not actively participate in the buying or management of the property. However, you do need to put in a lot of up front due diligence to make sure it is a good investment. You are trusting someone else with your money. Here is a complete guide to learning about real estate syndications.
Funds are like syndications in that you pool your money with other investors. But you basically just fund other investors to invest that money in various real estate projects based on their strategy. You don’t necessarily know about the properties beforehand. Pros: Hands off. Cons: Lots of trust, need too do extensive due diligence.
I put this in here because it has gotten very popular. Basically crowdfunding is investing in real estate funds with a smaller amount of money than is typically required from a single investor. Same advantages and risk. But this strategy is unlikely to result in huge gains just because the principal that you put in is much more likely to be smaller.
So, give it some thought
See if you think real estate is worth it for you. I think that it very likely would be. If you’re still unsure, send me an email at pruden[email protected] and I’m happy to answer any questions!
So what do you think? Are you still feeling peer pressure to become a physician real estate investor like me? Or have you internalized Jordan’s words and are now a real estate convert? Comment below and subscribe for more great content!
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