Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode. What's up guys. Hope you're having a great day today. I was going to talk about real estate. I am sure you've heard and seen maybe even in your own home, how real estate prices have been a little bit hectically. We're going to talk a little bit about this, but, uh, today I mainly wanted to focus on real estate as an investment. So how do you build wealth with real estate as an investment? I think with your, with your primary residence, this is really not the right approach. Your primary residence is a place that you live and it's more of a lifestyle decision than it is a wealth building decision.
Speaker 1 00:01:02 Uh, but lately, you know, real estate prices have been a little hectic. And so it might feel like you are building wealth in your home and you are actually building wealth, but it's difficult to realize that well, so, so yeah, we're going to focus in on the, the actual investing in real estate, outside of your primary resident, but all this, all this crazy real estate market stuff has been, uh, really interesting to watch it's as we record this. Um, I think, you know, the latest numbers it's definitely, uh, over, it's certainly double digit percentage increases, uh, you know, the overall United States and in some markets has been, uh, you know, quite a bit higher than that. Uh, we've seen a lot of our clients in our planning firm see massive increases in their real estate in short periods of time. And so this is definitely a kind of a big market factor right now.
Speaker 1 00:01:56 It has reminded me a lot of the price increases we saw in 2005 through 2007, but I think the causes the underlying causes then we're different. But, uh, I think that's the first question that typically comes to mind is what is causing all this. We'll talk about that in a second, but so this is going to be a podcast dedicated to people that have some interest in investing outside of their primary residence in real estate. So if you have, if you're not interested at all in investing in real estate, outside of your, uh, primary residence, um, you probably ought to skip this one saved the time. We're not, it's not going to be for you. So on the other hand, if you have any level of curiosity about investing outside of your home, or maybe you're kind of in the early stages of that, I think this is going to be really beneficial for, for that crowd of people.
Speaker 1 00:02:47 So odds are, you're going to get pitched a real estate opportunity soon, uh, or maybe a lot of you have already seen that happen. Maybe a lot of you are already in, on your real estate deals. So I think the key though is to have some of these baseline planning concepts down so that you're getting started on the right foot and going in with eyes wide open. So that's really what we're going to focus on today. Okay. So before I get into that, so this crazy market, I mentioned, I threw out the question what's causing all this, and it's, it's always fun to kind of talk about that sort of thing. And I'm going to kind of share some of the reasons I think, or what I've seen people say is causing it, but just a quick little disclaimer, I think it's important to say nobody really knows at the end of the day, a lot of people, people love to talk about what's causing these sorts of things, but at the end of the day, nobody really knows for sure, take 2008 downturn.
Speaker 1 00:03:42 For example, everybody loves to talk about how they saw it coming or knew what was causing it then, but nobody in like 2007 and six was talking about all the reasons that maybe they were hitting on one or two, but they, people just didn't see all that coming. Uh, it was, it was a shock and some of those things were kind of flying under the radar. So at the end of the day, nobody really knows all the underlying causes that are affecting this sort of thing. So take, take all this with a little bit of a grain of salt. Now you can still, it's good to be educated. And so, and, and kind of keep a pulse on what what's happening. And so, so I'm definitely not a real estate expert, but I know what what's kind of happening in the industry. And I know what people are saying.
Speaker 1 00:04:24 And so if you look at the price increases that we've seen, so what's driving that. So for starters, supply and demand is always going to drive prices in real estate. And so right now a real estate supply is ultra low and demand is high. And so when, when that happens, when supply is low and demand is high, that's always going to result in prices going up. When you have, for example, you know, one house for sale and the entire neighborhood, big old neighborhood, that's low supply. If you have one house for sale, low supply, and then you have like 20 people that want to get into the neighborhood, high demand, that results in competitive price, bidding price goes up. All of a sudden you get people asking, uh, bidding or, uh, agreeing to prices above market, and it just drives those prices up. So that's really what's happening.
Speaker 1 00:05:18 So, but why is demand high? Why is supply low? So I think the reasons I hear, uh, most common reasons, at least so demand is I think first because all these people still want to buy their first home. And the facts that the factors that are in play are making it even a little bit, potentially easier to buy their first home. So I think a lot of people say there's even more than normal people wanting to buy their first home, uh, with the millennials being in their prime home, buying a season of life. Plus I think with, especially with COVID and people being kind of locked down, there's more people than normal looking for like a vacation home or get getaway, have a property people that can afford it are definitely pulling the trigger on vacation homes. And then you got the people that live in the big city that have had have just through COVID wanted to get out of the city and move to the suburbs.
Speaker 1 00:06:12 And so that they're moving because of COVID and then you still have all these people wanting to invest in real estate. Plus on top of all this, you have really low interest rates and P and there's this stimulus money that a lot of people have. And so people like see the money, you know, stimulus money, they see the low interest rates. They're like, if I'm a millennial and I am still renting, I'm like, sh now's the best time ever. I need to buy now, especially those with solid incomes, like physicians, they're still buying. And, and a lot of people say they're buying a lot. There's a lot more of those people, uh, even than normal, but supply is low. So supply is very, very low. I think it's like record low number of houses on the market. So why is supply low that's that's the other big factor?
Speaker 1 00:06:57 Well, I think the first reason you see is home builders are cautious, cause they're a big part of supply. If there's a ton of new homes being built, that's going to help add to supply, but home builders are cautious. Uh, I think the main reasons they say is because, uh, they're still, they still remember 2008 and they really, a lot of home builders builders really got in trouble in 2008 because they were being too aggressive, taking too much risk. And so they seem to have in general or overall pulled back the reins a little also lumber prices are, are super high and skilled labor is difficult to find. So that makes it difficult for a home builder. And then on top of all that you have these local regulations, it's like, you know, different cities or even different municipalities, or they have to deal with all these local codes.
Speaker 1 00:07:44 And it tends to be pretty restrictive. And, uh, it's difficult to find a lot of times land or lots. And, and then when you do find it, you have to go, you have to follow all these rules and it's just not as conducive as it could be for builders, uh, that want to really increase the number of new constructions. So also contributing to the low supply. People are locking in low interest rates on their mortgages, in their existing homes, like the established people, you know, gen X and baby boomers. They're kind of just like setting on their homes, I think is the general consensus. They've locked in a low interest rate. They don't really want to do anything until everything settles down, uh, with COVID. And so they're there. They don't really have to move and they have a really good interest rate now. So they're kind of just chilling out so you can kind of see those collectively result in, there's just not a lot of houses, uh, available will be available to be purchased.
Speaker 1 00:08:38 So, uh, the net effect of that is prices will go up. So now on top of all this, so this is really what we're going to focus on today. So investing real estate investing, I think this has, seems to always be a hot topic, but it seems like it's even become maybe even a hotter topic, especially in the physician circles, is this idea of, I want to invest in real estate, you know, kind of as an alternative or on the side, or to get passive income or that sort of thing. So that's really what we're going to focus on today. So how do you make money? If we start to look at that subset of real estate and investing in real estate to try to really strictly make money. Uh, so how do you do that? Well, there's, if we boil it down to the most basic level, there's really three ways to make money in real estate investments.
Speaker 1 00:09:26 The first would be to own property that increases in value. So appreciation, it goes up in value as you own it. The second would be to own property that is rented out to others that generates income streams. The third would be to loan money for real estate deals and charge interest on that money. So that's just, you know, you just earn interest. Those are the three core ways to make money in real estate. And really if you compare that to other things, it's a lot like investing in, uh, any company or any investment for that matter. So for example, um, you can be an owner in a company, a publicly traded company is the easiest example because anybody can do it so you can buy stock in a publicly traded company. And hopefully the stock price increases in value and you see appreciation, uh, and maybe you also get dividends on top of that, which is income, or you can lend to a company in the form of bonds and earn interest on that bond.
Speaker 1 00:10:30 So at the end of the day, it functions a lot like any other business investment. So what are some of the actual ways to own real estate? Well, there's really a ton of different ways, but, but I'll hit on kind of the core or most popular ways that we see. So you got long-term rentals. That's I think most people know what that is unique. You buy homes, maybe single family homes in a certain area, and you rent them out for a long period of time to rent a cruise in. And that's how you do it. Uh, you also, nowadays this has become a lot more popular with the RBO and Airbnb is short-term rentals. So that's more like a hotel business model. Uh, you're you're buying real estate properties and renting them out, but for short-term periods of time, similarly to a hotel. So the market is people, you know, on vacation or in an area for a shorter period of time.
Speaker 1 00:11:25 So the typical long-term rental lease is like a year or more. And then the typical short-term deal or lease is like a few days to like maybe a few weeks. And so typically the rates for those are higher, but there's a lot more volume coming in and out it's much more like a hotel. Then you have flips like that. I'm sure you've seen TV shows with the flips. You, you buy up a place that it's like a fixer upper or maybe needs a little bit of cosmetic help and you put in the work and then you sell it usually for not a long period of time. Or you can just invest in apartments like multiunit deals, uh, or even hotels themselves. Uh, you got commercial properties, you can buy office spaces, uh, in industrial spaces, any sort of commercial deal. You could even buy raw land.
Speaker 1 00:12:16 That's, that's another kind of section of real estate. You can buy and hold land. You can lease it out. You can, you can develop land that's, that's another area. So there's all, all kinds of ways to invest in real estate and actually own it. There's also ways to, uh, lend money for real estate deals. So you can loan money to an individual or a business for a deal that they're trying to make. You can buy real estate bonds, uh, or funds bond funds that are kind of like effectively the same, but like pooled investments. Or you can do peer to peer lending. That's kind of like a different way to essentially loan money for a deal. You pull the peer, the peer to peer, uh, processes pooling of the money for a real estate deal, but it functions like you get an interest, uh, payment, uh, for that loan.
Speaker 1 00:13:12 But I think the first question though, before we go too far into what all this looks like, I think the first question you should be thinking about is do you want to be strictly an investor as in like you have no responsibility outside of writing the checks or, or do you want to be more involved? Like, do you want to get your hands dirty? Do you want to put your own personal touch on it? Do you want to be the boss? Like the, the, the manager operator, that kind of thing. So here I'll, I'll throw out some examples to kinda help you see what those different things might look like. So we'll start with like the least involved, uh, real estate investor, and then kind of go more involved as we go along. So, so when you're, if you look at the least involved real estate investor, the best example that comes to mind would be just buying or investing in a real estate investment fund.
Speaker 1 00:14:06 Like they call it a REIT. So you can invest in a mutual fund or some sort of fun like that. That is ultimately just going to buy real estate for you. And you have zero responsibility other than to put the money into the fund. And a lot of you probably already own this sort of asset, and you might not even realize it a lot of times. Uh, so like advisors, financial advisors, financial planners, like in our firm, our clients are investing in real estate through this channel. A lot of them don't realize it until they see the underlying assets. A lot of work plans also incorporate, uh, real estate into their platform of options. So really this is the at least involves because you're strictly only writing the check, writing the check and acting as the investor. Now you can definitely get a lot more involved.
Speaker 1 00:15:00 So the more involved real estate deals, this kind of gets into you finding other people's deals to invest in, but maybe you're not totally involved. So crowdfunding is a good example. You still have to like search for good deals and pick it, but you're not like literally picking the property and hiring the people and firing and calling the shots and managing it. You're not, you're just looking for the deal really in that situation and the crowdfunding situation. So that's where, you know, you got a lot of different, uh, pooled investment options. Another example is you got your buddy that has a real estate deal. Uh, and he's looking for investors. That's probably something maybe you have even seen come up in your own situation. The example I'm talking about is when they're like, listen, I'm going to handle everything. All I need you to do is write a check and be an investor.
Speaker 1 00:15:54 And so that's, that's the involvement part is you have to still do the due diligence on your buddy's deal. Like you need to check it out and understand how likely it is to succeed and understand the risks and that sort of thing. But at the end of the day, your buddy is responsible for, you know, managing it and running it. And then you have syndications. That's another example of kind of like private deals that you can invest in same sort of idea. Your responsibility still would be ideally to screen the deals and understand the deals and pick the best deal. But, uh, from there, you're handing it off to whatever company is managing the actual investments. So these examples you're kind of, you're get definitely a little bit more responsible. You definitely need to understand what you're doing and, uh, understand, uh, how it works and be able to screen them.
Speaker 1 00:16:44 But you're not really running a business necessarily. The last example, this is more what I would call. So this is the most involved example. This is like really running a real estate business. Maybe it's a really small business, but you're at the end of the day, your much more responsible, you're creating your own deals, uh, or partnering with others to, uh, do a deal. And you're fully responsible or substantially responsible for managing them. Uh, at the end of the day, your, uh, the one that makes the call, you're getting your hands dirty. So examples of this definitely short-term rentals, long-term rentals, flipping a house or managing alone, like to an individual. Like if you loan an individual money for a real estate deal, at the end of the day, all these examples, you are responsible. You can definitely hire help, but at the end of the day, you make the calls and are responsible for running them.
Speaker 1 00:17:40 So I think most people that are talking about investing in real estate, they tend to be talking about the last two examples, like getting your hands dirty type, like more getting into whether it's, uh, just kind of investing in another person's deal. Like you're somewhat involved, but not completely involved, or you're fully involved in essentially creating a real estate business. That's typically what you hear about when people are saying invest in real estate, and those deals typically have much greater return potential. They definitely are very popular. I hear people talking about them all the time. There's all kinds of physicians building substantial wealth and these sorts of deals. And they're great, but there's always trade offs, of course. And I think when you read about it and hear about it in general, a lot of times you only hear the benefits. That's just kind of a common, especially if you're Googling random articles.
Speaker 1 00:18:34 So I think it's important to understand really the behind the scenes of why that's happening. So why are all these people writing about real estate wanting to talk about real estate? I think the biggest reason there's so much, um, hype or, uh, interest around real estate is there's just a ton of money in real estate. There's a lot of money to be made. There's also a lot of incentive to write about it and talk about it. So there's all sorts of, uh, gurus. There's always been, uh, goobers and real estate. Uh, some of them put out great stuff and actually know their stuff. Sometimes they don't, but they all have some level of incentive and it can vary by situation, but maybe they want you to invest in their real estate deal or click through to their partner companies that ultimately pay them behind the scenes, or maybe they want you to buy their course or use their recommended real estate service providers that also pay them behind the scenes.
Speaker 1 00:19:39 They also have an incentive to keep, to have you continue reading. And so that's gonna often require, you know, staying interested in real estate and eventually getting into real estate. So I think this is important to keep in mind because there's all these incentives and conflicts of interest and that doesn't make these people bad. It's just, and most of the time they are good people and smart people, but I think it's helpful to understand that they're out there and really they're all, they're all over the place. And you'll go in to the reading, the content, I think more eyes wide open, if you understand that. And I'm kind of, it's like in medicine, they, you, you all do a much better job at revealing your conflicts. And that's helpful because you can kind of understand where the biases are. For example, like I have a conflict right now, I run a financial planning firm for physicians and that's my day job.
Speaker 1 00:20:28 So we have a financial incentive to convert you the listener into clients for our planning firm. So I'm definitely going to be a bias when it comes to things like hiring a financial planner. That's just, that's just the way it is by understanding these conflicts. I think it helps you be a more educated and smarter investor. So there's all kinds of people talking about real estate. And I think this gets kind of the, the interest going and like anything, some do well, others don't and like anything as well, when you hear about it from other people, you really tend to only hear the good stories. People are hesitant to share about their failures. So if, if maybe you're not reading about it, but maybe you're hearing about it from a colleague or a friend or something. So you also have to remember a lot of times you're not hearing the whole story.
Speaker 1 00:21:19 And so that's just the way people work. They tend to talk about their wins, not everybody, but most of the time they tend to talk about the best deal and they leave out the train wreck. You tend to be getting a filtered version when you're hearing from buddy. So I'm not trying to be Debbie downer here. I just really, I think it's something you got to know about before you get in so that you can, like I said, be educated as you start to invest. So I think the big benefits that people tend to share about when they talk or write about real estate investing, number one would be diversifying, you know, it's a different type of investment than the traditional investment, and it allows you to diversify. That's a common thing, passive income. That's probably the most common thing people talk about is passive income.
Speaker 1 00:22:06 It's a way to earn money while you sleep. Um, we're going to talk about that more. So, um, that's usually what kind of the idea the concept is that people share sounds appealing right? Also tax shelters, uh, real estate has unique tax shelters that, uh, you can't find elsewhere. That's a common point that these, uh, that, that the industry tends to make and better returns. That's pretty much always, uh, especially when somebody is really selling, uh, has a real conflict. Uh, they're gonna push those returns, but these always sound pretty good on the surface. You know, if that was the whole story, then you might as well invest all your money into home run. But like I said, there's always, there's always downsides and we'll talk, I think we're going to talk more about kind of what's missing from that and understanding that more behind the scenes so that you can kind of see both sides.
Speaker 1 00:22:58 There's always pros and cons, like I said, so I think the pros are easier to find you can Google, there's a million articles about all those benefits of real estate. And, but the, the, the negatives, the downsides, the other side of the coin, that's, that's really what, what I wanted to talk about because that's not as commonly discuss. So let's talk about the downsides and these will correspond to some of those common benefits that I just mentioned as well. So I think the biggest thing that people don't talk about when they're looking at real estate investing, uh, number one would be time. So typically going back to what I was saying before, I said, passive income earned money when you sleep, that is in most cases a lie, because at best it's, it's, uh, a little bit misleading. So with real estate, uh, anybody that I know that has been successful with it has put in a lot of time, it takes a lot of time, especially the more active, the active you are with the investment.
Speaker 1 00:23:57 So those sorts of deals like short-term rentals, long-term rentals, flips when you're responsible for it. That's especially the case is you're going to be having to, you should expect to put in a lot of time, starting a business. You got to really think of it like a business, but it just is gonna take a lot of time. So I don't passive income is a little bit misleading in that. I think it implies that there is so earning money when you sleep. That definitely implies you're not spending any time. It just happens automatically. So maybe you can get closer to that point, but I don't think you can really ever get to a point where there's no time requirement, uh, whatsoever, or, you know, zero. And if there is no time requirement, you have outsourced everything. So that is a whole separate deal in itself will require more costs, but there's still going to be time like managing those people that you outsource to.
Speaker 1 00:24:53 So I think that's a huge, uh, misconception is there is a lot of time required to start it, to get into it. Especially the further you go down that list of things I was sharing. And if you're not spending any time on it, that's a problem in itself. The second big thing is responsibility. I think same thing. The further down that list, you go, the more responsibility you have. So if you are getting into, uh, buying individual single family long-term rentals, for example, people are challenging to deal with. So you have to deal with people. You have to find a tenant, or you have to find candidates to potentially rent, and you have to screen them. You have to have a process for screening them. You have to have a lease, uh, for, uh, them to sign. Uh, you have to ultimately select the right tenant and you have to deal with them.
Speaker 1 00:25:48 You have to interact with them in some capacity, and then you have to hire people to either fix the house or manage the property or list the property. If you have help with that, there's inevitably going to be people service providers that you're going to have to work with. And these people are, it can be challenging people in general and challenging. We are not built all the same. And so that adds a whole element of challenge there in itself is dealing with the people, uh, and people typically will look out for their own interests. First, especially when you're talking about average, most people are going to look out for their own interests first and as a role result of that. Uh, and other reasons, I think it's just really hard to find really solid people. And it's, it's much, much easier to find people that will take advantage of you.
Speaker 1 00:26:35 So I think the big thing is you have to have, you really have fixed thick skin. You might say, you know, a property manager can do it for you, but, but at the end of the day, even if you outsource that kind of stuff to a property manager, um, you have to have thick skin enough to, uh, be able to fire them or ask them to lower their pricing or ask them why they're not getting the job done. That all falls on you, which is responsibility. So that's not even getting into the legal responsibility that the business planning responsibility, you're the one that's going to have to create the plan, select the deal that you purchase. If you're getting into short term rentals, you have to have the property in itself. You have to buy the property. You have to find the property, buy the property, uh, get the financing down, pull the trigger, make sure you get at least or fixed up.
Speaker 1 00:27:26 If you need to do that, that's a lot of responsibility. And then once the money's, uh, starts coming in and you have to manage it, you have to deal with bookkeeping and taxes and all that sort of stuff. And if they don't pay, you have to deal with collections or, you know, foreclosures. If you're doing long-term rentals, that's all, there's a million sorts of responsibilities. You tend to not think about on the front end, but that's, you know, part of the deal. And it varies by the type of real estate you're doing, but it's, it's, it's typically going to be definitely there. Another big thing that gets missed is the risks of real estate. So real estate values. I think most people know this now because 2008 was not that long ago, real estate values can go down. Doesn't matter what real estate it is.
Speaker 1 00:28:11 Doesn't matter if your market is great right now in 2008, most real estate went down to some extent, some went down way larger. We saw Wade larger drops than, than in some areas than in other areas. But at the end of the day, real estate values can go down and sometimes by a lot, and especially real estate that's leveraged. So if you're leveraging a real estate, that means you have debt on it. So if you have a mortgage on real estate, essentially, you only own a, uh, you own outright, a smaller percentage of the total investment. So when the problem with that is when values go down, you get a much larger, uh, percentage drop in your equity portion. It's much easier for you to go upside. That's what they go upside down is when you have the value has dropped below what the mortgage balances.
Speaker 1 00:29:01 And so you essentially have to pay to get out of the house. So that's where you can see massive swings and, uh, returns for you. So there's definitely risk in real estate, but it depends on what you're investing in, but something like a single family homes, for example, this is kind of within the risk situation. A lot of people think of diversification in real estate, but in reality, it's actually more concentration than diversification. So especially if you're doing something like one area, one type of real estate, like single family homes in Lexington and Kentucky, that's where I live. If you're just buying single family homes in Lexington, Kentucky, that's not diversification that's concentration and is less diversified. And so that's, it's not bad. It's just not diversified. And I think investing with investing a lot of people consider real estate, their safe money. Sometimes that's the case.
Speaker 1 00:29:56 Now, if you like, for example, if you don't have any mortgages on your real estate, so it's not leveraged and, uh, you have lower risk type of real estate, then maybe it is a fairly safe investment, but a lot of times it's actually much riskier than people consider it. The other big thing that people miss is returns on real estate. I think this is more of like an overstated thing. It's like, so, especially with, um, private real estate, I mean, you can find like a REIT, like a real estate investment trust. They have to report their returns and it's very straightforward and transparent, but we're mainly talking about active real estate deals. So private real estate is kinda like the wild West of investing. Like when you're talking to people about their experience, owning long-term rentals, for example, people throw all kinds of numbers out.
Speaker 1 00:30:44 Like there's zero there's no, there's, there's no way to verify that there's no like real standard to, to measure that against, uh, and people love to talk a big game. So it's difficult to really know what's actually happening with other people and get a pulse on the actual experience of other investors. And so that's, you can find some, some data on it, but it's difficult to find data on the returns on those types of investments. And people definitely tend to overstate those numbers, especially if they're, if you're getting pitched a deal. I mean, I would just be like shocked if they didn't show awesome returns. Like, what else are they going to do? They're trying to convince you to invest in it. So, um, and they're also optimistic about it. And so people, uh, are going to show solid return numbers. Uh, and if, you know, if they don't and there's no point investing for sure, but the other big thing is people show a return on investment that does not incorporate the time that they spent.
Speaker 1 00:31:48 That's. I think a big one that we see, because if, so, for example, let's say you have a, a short-term rental and you do not have a property manager. You do not have a cleaning company. Basically you do everything yourself. So your, the one that, uh, advertises it, you even put a sign up, uh, out in front of the house. You're the one that advertises it to get the tenants in there. You're the one that goes and meets them and gives them the key and shows them around. You're the one that deals with the problems as they come up and goes and fixes something. If it pops up, when they're there, you're the one that is going to clean the place after they leave and manage the money as it comes in and keep the books, basically, you're doing all of it yourself. And so that time component is a big deal.
Speaker 1 00:32:37 And if you're a short-term rental where someone doesn't do that to a short-term rental where somebody does do all that, a lot of times they're going to calculate their returns the same way. So if I'm an investor, I'm going to be like wanting to know if I'm an outside investor, I'm going to want to know what that time component is because that's definitely a huge part of the equation. Other big factor we, we see kind of missing from a lot of this is, is complexity. So, especially with some of these real estate deals that other people are pitching complexity is they tend to be extremely complicated. Things like syndications, a lot of times are super complicated. It takes a lot of time to understand them. And so you want to be careful with them. I think it's best. You need to understand it before you invest into, in, uh, into something you don't understand.
Speaker 1 00:33:29 It definitely don't invest, but that when you deal with complex stuff, uh, it just adds additional time and even risks, uh, for kind of missing things. So that's, it's gotta be considered too. I think the last big thing we see missing is, is alternatives. A lot of times people are not thinking about alternatives to real estate as a business. I think at the end of the day, it really is, uh, just a lot like running any other business, especially with the, uh, more involved real estate, like, like buying and owning short-term rentals. Long-term rentals, flips, that's a business, that's a real estate business. And so I think you've got to look at it like you're a business owner. So when you start to look at it like a business, you're like, well, um, you know, I can, if I can do this business, I could do any other business.
Speaker 1 00:34:20 You call the shots, you make the deals, you're responsible for it. You make the business plan. Um, but I think the biggest error I see is that people aren't thinking like the business owner, they're thinking like, I just want to make money while I sleep. And I think the right way to do it though, is you have to treat it like a business for it to work. And once you see it like this, you might decide there's a different type of business that you want to start. Like, like any business, real estate has all kinds of potential. You can make your real estate business like ultra successful your, any business that you are dedicated to and put in the effort and do it right, is going to see very big returns, much greater than like a passive investment that you're not getting your hands dirty with any business that runs well, we'll see, you know, solid long-term returns, but you might have a different type of business, like something.
Speaker 1 00:35:14 Um, you know, you can think of anything like you could start a medical device company or, um, create a new service, whatever, create an app and sell it to there's all kinds of things, anything the sky's the limit, but that's in the same category I think is, is in, uh, investing in real estate. But I think it's best to approach it with eyes wide open and have good expectations and not only the perks, but really what's the other side of the coin. So as we kind of wrap up here, if, if we're kind of trying to boil all this down and you're doing it the right way, so you understand kind of all the pros and cons, and you've say you've kind of decided to go down a certain path. I think before you get too far down the road, I would really hone in on the purpose.
Speaker 1 00:36:05 And maybe you've already thought about this, but if you haven't, you want to have a good answer for why? Like, what's your, why, why do you want to invest in real estate, especially if it's a more active real estate? Like, why do you want to build a portfolio of long-term rentals? I think common answers we see is build wealth, passive income tax benefits. Sometimes people will say, I want to have a place to vacation to, but also make some money. But, um, those are just kind of surface level. I think examples, but what I would say is ask a follow up, like, why is that an important thing? Because you know, why, so why are you looking to build passive income? And a lot of times, you know, when you peel back the layers, it's, uh, you know, I don't want to be, I want to work my way out of medicine or have an alternative option to work in or an alternative income source.
Speaker 1 00:36:55 Um, or maybe I have a passion for building a real estate business. Um, or maybe I want to fund my goals of being able to retire earlier fund education. Those are typically like the underlying, uh, reasons that people have, but I think it's good to iron those reasons out first and understand those. Because for example, let's say your reason is you want to have a place to vacation, to, and also have a good investment as well. Uh, that reason is, is that's a very tricky balance to strike. And I would kind of proceed with a little extra caution there because there's different reasons like each one typically has conflicting, uh, reasons, uh, or con con they, they tend to conflict with each other, like the ideal, uh, vacation place. A lot of times, it's not the ideal, uh, investment property. Now, sometimes you can strike a balance and do pretty well.
Speaker 1 00:37:50 Uh, but it's more difficult. Uh, also it's something, sometimes people will kind of, they'll trick themselves into, uh, deciding it's a great investment and really it's just a lifestyle decision and they're going to use it a lot and not rent it out very much and not treat it like a business. So I think it's better to just say it, how it is. Like if it's a lifestyle decision, it's all good, like, uh, have a vacation home and, and, but don't like buy it as an investment and then allow yourself to do it much sooner than you would have otherwise, because it was an investment it's better just to say it, how it is or pick one or the other makes it a little easier. You don't have to do that, but it gets tricky when you combine those two together, but understanding that purpose is going to be beneficial, let's say.
Speaker 1 00:38:34 So I think of the best reasons, like if you're really ha you do have like a passion or, uh, you're excited about it and you want to kind of change how things are done, or you want to be like a landlord that, that is actually a, does a good job for tenants and has a good relationship or builds a different type of real estate. I mean, those are, I would say some of the best reasons for doing it building wealth is okay. Uh, but like when you can kind of find some passion and solid reasoning behind it, that's I think really where you can hit a home run. There's a ton of ways to build wealth. Real estate is really crowded and competitive. Like a lot of industries really life is short and your time is valuable if you want to make sure if you want to make sure you're making a good decision, I think it's best to try to go in, uh, for the right reasons and, and, and really think about your time.
Speaker 1 00:39:28 And it's extremely valuable. And if you're going to do something like this, it needs to have a very good reason for doing it. So start with your, why understand your purpose. If you want to go down a more active path, you definitely want to learn about that type of real estate. First, at least the basics you don't need to like learn, go to college, uh, become an expert, but, uh, you know, maybe take a course, read a book, follow a blog, uh, make sure you understand the conflicts. Especially if you're dealing in like a kind of the private world, create a business plan, that's going to help you iron out the goals and timelines and financing and return potential risks. And, and I ideally you set concrete action items as a, uh, kind of a follow to this planning process. And then really it's just about going out and executing.
Speaker 1 00:40:16 Don't expect perfection. I think it's almost better to expect imperfection like, and learn from the mistakes. That's really how you get better at things like this is you go out and you make mistakes. Hopefully they're small and you can learn from them. And hopefully you can learn from other people's mistakes, but at the end of the day, you're going to make mistakes. And it's definitely not going to be perfect. And over time track your returns, uh, so that you can compare it to other investments so that, you know, kind of how well it's doing relative. And don't forget to incorporate your time. Ideally, you track your returns on investing and you track your time spent on it. That's the best case scenario so that you can really get a good picture of how things are going. And for the time component, I would look at it as a like dollar per hour kind of a thing.
Speaker 1 00:41:09 And you can even start to incorporate that as a cost. Now there is, especially if you're building a business, there is some like front end front loaded investing that you would, you know, typically want to do, but tracking, this is always going to be a beneficial data point. And sometimes what you'll see is, you know, maybe you didn't realize how kind of a low the dollar per hour payout was for you. You're spending a ton of time and the return is not great. I'm going to do that over because there was a cut that last part start over. So don't forget to incorporate your time into this, uh, tracking time would be ideally best case scenario. And as you start to see the time you spend, you want to think of it like dollars per hour. And are you good with this hourly rate? So if you're tracking time and returns, sometimes you're just going to see, you know, ideally you see solid numbers and you're, you're satisfied and you're happy and you keep the property and, or you're you stick to the course.
Speaker 1 00:42:09 Um, other times it it's bad. You're you see that your dollar, your rate that you're essentially earning per hour or the, the return on the investment is pretty lousy. And so, uh, that kind of pushes you in another direction, but ideally you have a pulse and that requires some sort of a tracking or like KPI or that sort of thing. So I hope all this has been helpful. This has been, the intent was to kind of hit on the high points of real estate investing. Talk about some of the things you probably don't read about as often, uh, look at definitely the downsides, as well as some of the positives. If you want to get into the weeds more and definitely let us know, we can find, uh, depending on what direction we go, we can find an expert to come on and join me.
Speaker 1 00:42:56 And we can really dig into some of the more specific areas of real estate, but hope it's been helpful. Let us know if, like I said, if you'd like to dig in more and, uh, hope you have rest of your great rest of your day, and we'll see the next time as always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our website at finance, for physicians.co for all sorts of additional content. See you next time. Finance for physicians is not an investment tax legal or financial advisor. All content included in this podcast is for informational purposes only and should not be considered financial tax or legal advice. Material presented. It is believed to be from reliable sources and no representations are made by finance for physicians as to another parties, informational accuracy or completeness, all information or ideas provided should be discussed in detail with an advisor accountant or legal counsel prior to implementation. You don't have an advisor or like a second opinion. Feel free to check out our website for recommended advisors.
