Medical Students Shouldn’t Invest in Real Estate

by The Darwinian Doctor

In this post, I lay out my argument that medical students shouldn’t invest in real estate, even if they happen to have $60,000 lying around.

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I had a conversation with a medical student the other day about real estate investing. 

He told me that he’s in his second year of medical school and spending most of his time cramming for Step 1 of the medical licensing exam.  Like most medical students, he had taken out student loans for medical school. He estimated that he will have about $400,000 of student debt when he graduates in a couple of years. 

He had worked prior to medical school and managed to save an impressive $60,000 in cash. Since starting medical school, he’s kept it in a savings account, uninvested. Most of our conversation centered around what he should do with that money. 

He clearly wanted to invest it into real estate.  The question was:  should he do it? 

Over the course of our conversation, I tried to make the case that medical students shouldn’t invest in real estate.

What are the options for the money?

For better or for worse, there are a ton of options for a lump sum of cash.  We are in an age of increasing access to all sorts of investment opportunities through the rise of internet based financial transactions.  These days, you can literally invest millions of dollars via your smartphone from the comfort of your couch while watching the new season of Bridgerton

Here are some of the options that we discussed, as well as a few we didn’t talk about:

  • High interest savings accounts
  • Treasury bills
  • Bonds
  • Individual stocks
  • Index funds
  • Land
  • Residential or commercial real estate
  • Cryptocurrency

Out of these options, some of them are viable options, while others are just forms of gambling (in my opinion). 

While it’s beyond the scope of this post to fully discuss all of the options, let’s just get one thing straight.

Real estate investing is a lot of work

Here’s the thing about real estate investing:  it’s a lot of work.  I think that this fact isn’t emphasized enough. 

I’m not saying that it’s impossible to hold a full time job and successfully invest in real estate. After all, I built my active multifamily portfolio while I was employed full time as a urologic surgeon in Southern California.  During that time, I averaged about 50-60 hours a week in my job and spent my nights and weekends on the real estate. It was a lot of work, but I was driven by my desire to accelerate my path to moFIRE.

But as I entered my sixth year of employment, I faced an uncomfortable realization.  I was burnt out from my surgeon job.

Continuing as a full time physician and real estate investor wasn’t really viable anymore.  I just didn’t have enough time to spend on my priorities, which included my family and friends, the Darwinian Doctor blog, my surgeon job, and my real estate. 

It took a cross country move and tumultuous year of adjustment, but longtime readers will know what I eventually chose to do about it. In short, I reinvented myself as a Memphian, locum tenens physician and full time real estate investor.  I now have more time to spend on the all the activities that bring me passion and joy.

Enough about me

This is a lot of words to say that I think it’s a fallacy to think that active real estate investing is easy.  It takes hard work and more importantly a good amount of time to be successful as a real estate investor. I know a lot of amazing attending physicians who can do both their day job and real estate, but doing this as a medical student or resident is another story.

The hours of your average resident physician are much higher than the hours of an attending physician.  I don’t think most people would argue that point. But when you consider the studying a medical student has to do on top of their classes and rotations, I think the hours are fairly comparable!

For this reason, I just don’t think it’s a good idea to take on active real estate investing during medical school or residency training. 

Read more: People Who Marry Doctors in Training are Saints

Medical students need to keep the end in mind

When someone says, “Keep the end in mind,” they’re often talking about the mindset trick of focusing on a larger goal as a source of motivation.  This is an invaluable technique, especially in medical training because the road is so long (and rough).

For anyone in medical training, the larger goal for most students is to become a licensed medical professional who can treat the sick, helping them become healthy again.  This is a great goal and one that I’m blessed to have achieved. 

But in medical school, there is an equally important goal:  get to the finish line. 

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I have a couple of friends from medical school who didn’t make it to the end of their four years for one reason or another.  After investing so much time and effort to get into medical school, it can be truly heartbreaking to be forced off the path.  I’m sure they’ve found their way by now, but at the time, I recall feeling a lot of empathy for them. 

Every year, there are medical students who can’t progress due to poor grades or failing their licensing exams.  This is a tragic end to their medical journey, especially in the era of the doctor shortage.

So between the two options of starting your real estate journey or ensuring that you make it to the finish line of graduation, I think the choice should be clear: Focus on graduating and getting your MD! Spend your time in medical school learning the basic science and clinical knowledge necessary to begin your residency in your desired specialty.

There are so many alternative career options available to you later on as a physician, but first you’ve got to secure that medical degree. 

What did I recommend?

Keeping in mind that I’m not a licensed financial advisor and my advice is worth about as much as a sack of rice, what did I recommend to my medical school student to do with his money?  Here’s the breakdown:

  1. Emergency fund
  2. High interest savings account
  3. Stock market (via index funds)

I always recommend that people have some money fully liquid as an emergency fund. This way, an unexpected expense like a flat tire won’t cause you to go into credit card debt.

With interest rates still at an all time high, there are some savings accounts that actually offer pretty respectable returns for virtually no risk.

If the time isn’t right for real estate, I’m a big believer in index funds for liquidity and decent returns over time. So my final recommendation was that he put some of the cash into the stock market to start his compounding as soon as possible. This exposes him to a bit of risk in terms of stock price fluctuations, but over the long run should be a reasonable option that gets him more return than savings accounts.

Read more: The Simple Path to Wealth

We spent some time discussing simply using the cash to reduce his student loans, which he’s borrowing at an interest rate of more than 7%.  It’s hard to reliably beat a return of 7% when you want to keep your money liquid and low risk. 

But given the amount of student debt he’s facing, he’s decided that he’s going to go for PSLF (public service loan forgiveness).  I warned him that this would limit his employment choices after residency training, but he’s at peace with this as well.  If I were facing that kind of debt, it’s an option I’d highly consider as well. 

But let’s talk about real estate specifically now, and why I think medical students shouldn’t invest in real estate. 

Medical students shouldn’t invest in real estate

Above, I recommended against real estate investing because of the amount of time that it would take away from learning during medical school.

But here are a few more reasons:

  • $60k isn’t enough to money to be an active investor
  • You need liquidity to weather the storms of real estate investing
  • Medical school is an expensive time of life

If you wanted, you could certainly sink $60,000 into a real estate syndication that allows unaccredited investors. But if someone makes a nontraditional investment, they’d be better off if that one investment doesn’t cause financial ruin if it happens to go up in flames. That’s the purpose of having some investments reserved only for accredited investors (even though that term doesn’t mean what it used to mean).

$60,000 isn’t enough money

But if you want to be an active investor, $60k just isn’t enough. Even in lower cost areas like the Midwest, $60k is unlikely to buy you much in terms of a well maintained, cash flowing house.  And once you’ve purchased the house, don’t forget that you’re going to have costs like property taxes, insurance, and maintenance. 

That’s why I feel it’s essential to have ample cash reserves as a real estate investor. You need to be able to weather the storms of repairs and economic turmoil. If you don’t have enough reserves as a real estate investor, it’s like going through life without an emergency fund. Any single expense can lead to financial ruin or bad decisions.

Since medical students have no active income, it would be out of the question for students to use debt to purchase rental real estate.

Finally, given the costs associated with medical school, there’s a strong incentive to keep a good portion of that cash available for emergencies and big-ticket items like residency interviews, moving costs, and vacation.  (Yes, I believe medical students should go on vacation.)

For these reasons and others, I advised him not to take the leap into real estate investing right now. 

But what if medical students really want to get started now?

Medical professionals are a determined lot.  And for some who’ve really gotten bit by the real estate bug, it will feel very unsatisfying to not make concrete steps towards their real estate empires.  I can understand that.

For these zealots, I recommend investing in their real estate education.  Here are a few great books to get you started:

Conclusion

In conclusion, I believe that medical students shouldn’t invest in real estate.  First of all, med students need to focus on their biggest job:  earning their medical license and getting into residency.  Second of all, it’s best to be a real estate investor from a position of financial strength.  (That’s why the physician income is such a great match for real estate investing). 

Luckily, there are a lot of ways my medical student friend could use his $60,000 other than real estate, such as using it to avoid financial ruin via an emergency fund, or invest it into a high interest savings accounts or index funds. 

I closed my conversation with the medical student with some praise. It’s such a blessing to be a medical student. 

If you’re a med student, congratulations. You have put yourself firmly on the path to be a high income professional.  You’ve gotten so far already.  Just keep up the good work and cross the finish line.

Once you have a physician income, your journey to financial freedom will accelerate like never before. 

Daniel Shin, MD

The Darwinian Doctor


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Since everyone is different, it may not be appropriate to generalize my doctorly advice to your own situation. Please run all medical, life, and financial advice by your own physician or financial professionals before applying it to your own life! Consider all information for your entertainment only!

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