Real estate investing is an amazing wealth building tool. When done the right way. In general this is true but it is especially true for physicians. And that is what got me into real estate investing in the first place.
However, as Selenid and I have built our portfolio from one duplex in 2020 to 8 properties and 18 doors in 2023, there is something that worries me. And that is how real estate investing is represented by others a lot of times. I can say that it is in general misrepresented because that has been my story and experience as a physician real estate investor over the past few years.
And I do worry that misrepresentation can discourage other potential physician real estate investors from such an amazing wealth building tool.
How is real estate investing misrepresented?
Well, REI is most commonly directed within our circles as a rocket ship. You get on and then, all of a sudden, boy does that thing take off. And before you know it you’re among the stars.
What I mean by this is we most commonly hear about doctor investors who got started. And then 1 year later they have 100 units and are financially free. The reason we hear those stories most commonly is because they are exciting and sexy. And while they do happen, in my experience, they are the exception rather than the rule.
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And thats ok. In fact, I argue that it’s better than ok. Because the tortoise beats the hare in real estate investing!
And I want to show you why
Because what real estate investing is really like is a flywheel. Having said that, I am going to do something that I rarely ask…but if my concept of the real estate flywheel is foreign to you, pause and take 5 minutes to read this post before continuing…
Being a real estate investor means making coordinated, repetitive, small pushes on the flywheel. And it’s really hard at first. But then it starts to gain momentum. And more. And more. Then, that is when things really start to take off!
But, that description isn’t always that sexy. So it’s less talked about.
But, as always, I think full transparency is key and that this can actually be an encouraging thing to talk about. Because then you don’t get discouraged when you hear about others on a perceived rocket ship and you’re only on your first push of the flywheel. In fact, talking about it this way I think is more encouraging!
My trip on the real estate flywheel
You hopefully have already read this post on my investing story. So you should be caught up on our journey until June 2022.
At that point, we had 4 going on 5 properties.
So let me fill you in from then until now (2023)…
August 2022
We save for another down payment heavily relying on income from our properties. It only takes 3 months from our last property purchase now.
We find another duplex that meets our criteria and buy it for $235,000. It adds ~$1300 per month to our real estate cash flow.
October – November 2022
Now the flywheel is spinning a bit faster!
We find 2 great properties that both meet our criteria and buy them! Both are on market but one we get an exclusive first look at due to real estate agent connections.
We buy #1 for $185,550 and #2 for $200,250. They add ~$1,100 and $1,500 to our real estate cash flow monthly.
But then in 2023…
Interest rates go up, up, up. Housing prices taking a long time to go down, down down. So, we keep looking…patiently. And meanwhile shift our strategy to pay more debt…
August 2023
It’s now about 1 year later since our last property. We identify another duplex down the street from another of our properties
It cash flows well with expected CoC return of >10%. We buy it for $184,500. It adds ~$1,00 to our real estate cash flow monthly.
And now you are up to speed!
Let’s do a quick tally of our real estate investing timeline
Because this issue an excellent representation of how the flywheel works:
Our tally in properties
- 2020: 1 property (3 doors)
- 2021: 2 properties (5 doors)
- 2022: 4 properties (8 doors)
- 2023: 1 property (2 doors)
Our tally in cash flow
- 2020: $1,150 monthly
- 2021: $5,150 monthly
- 2022: $10,650 monthly
- 2023: $11,650 monthly
And it continues to grow. But sustainably. And on our terms. And that is super important.
Because now I want to share…
4 reasons the tortoise beats the hare in real estate investing
1. Markets are cyclical
Just like any market, the real estate market is cyclical.
That means that there are good times to buy property. And there are better times to buy property. You’ll notice I didn’t say that there are bad times. And that is on purpose and careful. Because I do believe that there are good deals to be found in any market. So you always have to be looking and ready. But naturally there are times where good deals are more available and accessible than others.
And forcing yourself onto the rocket ship during a cyclical market time where good deals are less available is a recipe for disaster. You are too likely to take bad deals just for the sake of perceived progress.
Bottom line, there’s a time to be aggressive and a time to not so just keep the course.
2. It’s the long game that matters
Of course I understand that many physicians looking to get into REI do so because they are burned out and want financial freedom to get out of medicine.
But even so, it’s important to understand that REI is a long term game, not a short one. Because the real estate market is just like the stock market. It fluctuates in the short term but has been reliably up trending in the long term. And not just in terms of property valuations but in terms of rents as well.
You need to create a sustainable investing strategy to stay for the long course and take advantage of this long term game. Being the hare is much less sustainable…
3. Leverage is good but can go bad
The concept of taking on more debt (in the form of am mortgage on your investment property) to make money and get out of other debt (like student loans) is a bit of a mind bender at first.
But once you begin to understand the concept of leverage, you begin to see that this is a rare form of “good debt.” Because it is a form of debt that pays you to have it.
So that is a great thing about real estate investing. When used judiciously…
Because leverage can go south real quick when it is overused or used flippantly. Real estate is a reliable way to grow wealth. But the times that I hear it go bad are times when people take on too much debt and leverage and it turns on them. Just look at what happened to so many real estate syndicators in the recent years!
And unfortunately, being the hare can (most often unintentionally) encourage investors to be over-aggressive with leverage.
For instance, doing a cash-out refi on a property to tap equity and buy a new investment property can be a great strategy. But remember, this will increase the mortgage and decrease the cash flow on the property you just did the cash-out refi on (because the value of the property and thus the amount on the mortgage went up from a re-valuation). If you over-do this or do it for properties with a smaller cash flow to begin with, you can get into trouble.
4. Burnout is real
Burnout in medicine is a huge problem. And that is a massive understatement. I experienced it just like many of you have.
And a mistake that I see a lot of physician real estate investors make is they trade burnout in medicine for burnout in real estate investing.
Which absolutely does not fix the problem at hand and just creates a newer, maybe even more financially risky one (maybe not more mentally risky but that’s another topic).
I see this most often in would-be investors looking to emulate the real estate hare…
My final message
If you are starting in real estate investing and it feels like slog. That means you are doing it the right way.
Embrace the tortoise in you.
The flywheel is a smoother ride.
And enjoy all of the amazing wealth building and financial freedom-creating benefits of real estate investing!
Here are some more great resources for doctors investing in cash flowing rental properties!
- A Real Estate Investing Guide for Physicians
- How to Screen & Analyze Investment Properties the Right Way
- How to Use Debt to Buy Real Estate
- 5 Rules for Successful Real Estate Investing
What do you think? Are you a tortoise or a hare? Have you noticed a depiction of REI more as a rocket ship? Do you think that’s accurate? Let me know in the comments below!
Wouldn’t it be better to pay cash for one property, or pay off one property, instead of taking on debt?
Eliminates interest payments.
Less hassle with less doors/vacancies to manage, etc.
Better Cash on cash return
More likely to find a CoC >10% without all the above
Let me know what you think.
Paying all cash is definitely a viable way to go. However in this case I consider the debt to be “good debt” since it pays you to hold it. Your CoC return will actually be less by paying all cash since you don’t use the banks money. But yes many ways to invest successfully!