By Dr. Peter Kim of Passive Income MD, WCI Network Partner
Based on our past 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 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.
#1 Time
This is the major reason right upfront. 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 and 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 up front 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 to 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 payments 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 six 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 also 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.
Final Thoughts
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.”
Don't forget to sign up for the free White Coat Investor Real Estate Newsletter that will alert you to opportunities to invest in private real estate syndications and funds, including most of those that Dr. Jim Dahle invests in.
Do you agree with these points? What other ways do you think passive real estate investing is better than active real estate investing? Or do you think active real estate is the way to go? Comment below!
Great review!
I think important points to highlight are that even “passive” real estate investing is not 100% passive. There’s a lot of work that goes in on the front end. You are basically handing your money to someone else and trusting them with it. So make sure you do a lot of due diligence and educate yourself to understand good from bad deals.
Second, active REI is a lot more work than investing in syndications. But I find that it can be overstated sometimes. My wife and I went back and forth about our REI plan before ultimately deciding on active direct investment given its greater control and returns. We have built our portfolio to 4 going on 6 2-4 unit properties. We both currently work full time and have automated things so it is very hands off. With a good team, it becomes quite passive.
Either way can be very successful when you choose what is right for you!
With the passive syndications, once you have done your initial due diligence and invested, do you have to keep doing due diligence and micromanage the people managing the real estate? DO they typically continue to perform at a high level or do they sometimes start screwing things up?
Not sure you can do much about it anyway at that point, depending on the liquidity options. I watch them to see if I want to invest more with them, not to try to save this investment somehow.
I also do a hybrid approach at least for now. Totally agree with everything you said. I started with syndications and now do active. I’ve learned that I don’t like the lack of control in syndications so I will be moving away from that for now. Plus the big negative to me for syndications is the lack of long term wealth creation you get from active rei. I have no doubt that the professionals in syndications may do better in the short term on returns than I most likely will, but long term with increasing rents and property valuations no syndications can come close to to active since they have to sell the properties quicker than I do in active rei. You also don’t have to worry about you stealing or defrauding your own money in active rei.
I have no knowledge regarding REI yet, however, I’ve stumbled onto some instagram and videos on social media by real estate investors touting their success. How can I discern those who are telling the truth from the liars? Do you perhaps have a list of trusted people I should watch on YouTube and such? Thanks!
I’d start with this list:
https://www.whitecoatinvestor.com/real-estate-investment-companies/