In the fall of 2002, I bought a one-bedroom condo in Gainesville, FL, renting it out until I moved there in the summer of 2003. In 2007, I moved out, and for the next seven years, I rented the place to two different tenants.
2007 was also the year that we started building our dream home in northern Michigan, moving in when it was completed in the spring of 2008. In 2011, my seemingly-secure job as the only anesthesiologist in the county was eliminated and soon after, the hospital went bankrupt. I rented that place out to one long-term tenant and a number of short-term vacationers.
In hindsight, neither place cash-flowed well. They weren’t even close to meeting the 1% rule. I just wasn’t ready to let go.
I didn’t love being a landlord, especially one living in another state. I sold the condo in 2014 and the “dream home” in 2015. Ever since, I’ve only made passive real estate investments, the results of which I’ve detailed here. This Saturday Selection from Dr. Peter Kim originally appeared on Passive Income MD.
Based on our past Passive Income Docs Facebook group poll findings of thousands of physicians, when we posted the question, “Do you prefer to invest in Active or Passive real estate?,” we’ve found that roughly 25% of physicians prefer directly owning rental properties (active) while the remaining 75% prefer investing in other people’s deals (passive).
While a Facebook poll isn’t the most scientific study, it did validate the trend I’ve noticed in talking to physicians – doctors would rather work as doctors and let others make money for them.
The thing is, many think you need to choose either one side and stick with it. The truth is, you can do both. I’ve maintained a hybrid approach investing in deals dependent on how much capital I have and what the opportunities are.
However, if someone forced me to choose a side, I’m more inclined toward passive deals similar to the majority of physicians who took part in our poll.
Want to know why? Here are a few reasons why doctors prefer passive investing…
This is the major reason right up front. While there are many ways to create additional income using a wide range of investment vehicles, as doctors, our most limited resource is time. We’re busy with our day jobs and when we go home, we want to spend time with our families.
Do we want to use our “free” time to research, vet, manage teams and tenants, strategize, etc? Or do we want to enjoy our time and let someone else do the work?
Passive investing allows you to do what you do best (being a doctor) while still building up income streams to give you the freedom to do what you love (whatever you want).
2. Leverage Other People’s Knowledge & Expertise
It probably took you at least a decade to become an expert in your field. It also required a good deal of effort, experience, and trial-and-error. The same is true with real estate investing.
The good thing is you don’t need to spend another decade learning the ins and outs of real estate to become a successful investor. You can leverage others who do this for a living and know their way around the industry.
Leveraging other people’s knowledge and expertise can be your greatest asset in building wealth that fast-tracks you to achieving your financial objectives. You’re tapping into the goldmine of industry experience without having to go through the entire process yourself.
3. It’s Truly Hands Off
It’s true; nothing in this world is for free. You have to pay to have someone working for you to create income. However, after putting in a bit of your time and effort upfront to do the proper due diligence, the rest of your passive investing experience consists of reading updates, checking for deposits, and handing off tax forms to your accountant.
With passive investing, you’re able to own a piece of a physical asset without doing any of the effort yourself to acquire, build, manage, and sell it.
I like to say you can get 80% of the benefits of investing in real estate with 1% of the effort.
4. Ability To Start Small
If you wish to acquire a decent rental property on your own, the odds are you’re going to have to put in hundreds of thousands of dollars and sign on a large loan. The capital commitment for one property can be significant.
However, it’s possible to invest in passive real estate for much smaller amounts. My first investment was a $5,000 investment and still to this day, I’ll make $25,000 and $50,000 in projects I believe in.
These smaller check sizes allow me to diversify my holdings and participate in deals all over the country with different sponsors. I’m able to partner with experts in the industry for a fraction of what I’ve had to invest to buy an out-of-state apartment on my own.
Many of us would like to invest consistent amounts early in real estate, even when we might not have 6 figures saved up to invest. It’s possible when looking for passive deals.
5. Don’t Have To Deal With The Backend Aspect
In addition to not having to deal with the two most dreaded aspects of investing in real estate – “Toilets and Tenants,” you don’t need to worry about securing a mortgage, getting insurance, dealing with the local authorities, and so on.
I really enjoy the benefits of investing in real estate but these other tasks and responsibilities don’t bring me joy. I’d rather not have to think of these things.
Bear in mind, active real estate investing is like running a business and all that comes with it. When done correctly, the returns can definitely reflect the time and effort put into making the investment successful.
I’m guessing that most doctors don’t want to be involved in all the paperwork. Name a doctor who loves dealing with insurance and charting. The less I have to deal with paperwork in real estate investing, the better my life is.
As I’ve mentioned before, there’s no one way to successfully invest in real estate. I keep a hybrid approach and I know people who have built up financial freedom using both active and passive real estate.
Although I spent the majority of this post talking about why passive real estate is best, there’s no doubt there’s more control in owning your own properties and there’s the potential for higher returns.
Doctors just need to figure out what fits their goals, their time, and their interests. Just remember that the key to all these types of investments is understanding the due diligence necessary to find good people to invest with.
As you might’ve heard in medicine, “It matters who’s holding the knife.”